Hogg Robinson Group Regulatory News (HRG)

20 May 2015

Hogg Robinson Group plc

Preliminary Results for the year ended 31 March 2015

Continuing to make progress against strategic priorities

Summary of results

Highlights

§ Revenue up 1% on a constant currency basis, down 3% reported, with a majority of the growth driven by North America

§ Client transaction activity rose by 6%; travel spend increased by 3% at constant currency

§ Cost reduction programme yielded £2.6m cost saving in FY15 (annualised savings of £8.7m from FY16)

§ Profit before tax, including net exceptional costs, down 8% and underlying profit before tax down 15%, reflecting short-term challenges for which mitigating actions are ongoing

§ Spendvision revenue up 16% and underlying operating profit ahead 17%, both at constant currency

§ New ten-year pension deficit reduction plan agreed; reduction in annual cash contribution of £1m

§ Net debt reduced by 16% to £55m in line with strategy; equivalent to 1.0 times last 12 months EBITDA(3) (2014: 1.1 times)

§ Final dividend up 7% to 1.69p per share; full-year dividend up 5% to 2.32p per share with underlying dividend cover of 2.8 times (2014: 3.5 times)

Outlook

§ Further recovery in the UK and North American travel markets during FY16; conditions in Continental Europe and Asia Pacific will remain consistent with FY15

§ Continuing progress against strategic priorities and revised Government of Canada structure provide base for Company to grow ahead of the market

§ Confident that the Company will make further progress through the rest of the year

Notes:

(1) Before amortisation of acquired intangibles and exceptional items

(2) Free cash flow is the change in net debt before acquisitions and disposals, dividends and the impact of foreign exchange movements

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

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

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

"We operate in an industry undergoing significant change, driven by new technologies. For our part, whilst the changes have created some short-term headwinds, we are well placed to capitalise on the opportunities that are also presented. As we look ahead to the current financial year, we will continue to execute against our strategic priorities which provide a solid platform for accelerated growth."

Contact Details

Notes to Editors

Hogg Robinson Group plc is the award-winning international corporate services company. Established in 1845 and headquartered in Basingstoke, Hampshire, UK, the Company specialises in travel, expense 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. Read the latest Company news and search our archives.

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

In FY15 underlying profits were £31m (2014: £36m), free cash generation was positive and net debt reduced to £55m (2014: £65m). We continue to sign new business and are developing opportunities under our new Fraedom brand exploiting our skill at combining business services with our expense and travel Software as a Service technology.

During the course of the year, the Group has faced a number of challenges, both immediate and longer-term, surrounding structural changes affecting the industry. We made good progress addressing these changes. In addition, we reached a satisfactory conclusion to our discussions with the Government of Canada to put our provision of services to them on a firm footing for the next six years. Together with other actions we have taken this year to manage our cost base, this has enabled us to have a strong second half recovery and to meet market expectations. We remain committed to a progressive dividend policy and I am pleased to confirm that, for the third successive year, we propose a 5% increase in the total dividend for the year.

Chief Executive, David Radcliffe, will review business performance in his report and I will simply note that the structural changes we are addressing of pricing pressure and internet-driven business mix have again resulted in higher activity volumes not being reflected in the revenue line. Nevertheless, continued good cost management and a successful focus on cash management and debt reduction, together with the launch of a new business initiative, leave the business in good shape for the coming year. I am also pleased to note that economic conditions in North America and in the UK are more encouraging than they have been for some time.

I referred in last year's statement to the pension fund net deficit remaining stubbornly high and this remains the case. Indeed, shareholders will note that as a result of macroeconomic conditions, it has now risen to £259m (2014: £180m). As before, very low interest rates within the current economic cycle have more than offset increases in asset values. The defined benefit scheme is closed to new members and future accrual and we have this year agreed with the Trustees a new triennial deficit reduction plan to normalise the deficit situation. This is in line with the long-term plan we have in place with the Trustees.

A key part of my role as Chairman is to promote and instil the principles of good corporate governance in the Company. I can assure shareholders that the Board devotes considerable time to this subject.

In December, we welcomed Mark Whiteling to the Board as a new Non-Executive Director of the Company. At the same time, Mark was appointed as a member of the Audit, Remuneration and Nominations Committees. Mark is the Chief Financial Officer of Premier Farnell plc and has considerable senior international finance experience. He will assume the roles of Chairman of the Audit Committee and Senior Independent Director with effect from the conclusion of this year's AGM.

In July, I will have completed more than nine years as Chairman of Hogg Robinson, a period that has covered the financial crisis and seen a very significant growth in the influence of the internet on the way companies and their clients interact. Not surprisingly and as is the case with many companies, this has had an impact on the development of our business. Throughout the years, one constant has been the loyalty and commitment of my colleagues to delivering the best possible outcomes for all our stakeholders. I would like to thank them and wish them every success in the future.

I would also specifically like to thank Philip Harrison, our Group Finance Director, who will leave the Board on 27 May 2015 for a role outside the sector. He has been a great asset for the Company and we wish him well.

Finally, to my successor, Tony Isaac, the Group's new Chairman with effect from 24 July 2015, I offer my best wishes for the future. Tony is an experienced chairman who I have worked with for the last nine years and who I am sure will lead the Board in steering the Company to a successful future.

John Coombe

Chairman

Chief Executive's Statement

Overview and strategy

The financial year ended 31 March 2015 proved to be one of the most challenging for the Company in recent years. Although we saw further recovery in the UK and in North America, market conditions in Continental Europe and Asia remained weak. We faced a number of particularly challenging issues as highlighted in our July 2014 trading statement which, coming together at the same time, resulted in a difficult year and a disappointing financial performance. Despite this, we continued to win good quality new business and maintained our traditionally high client retention rate. Our results show revenue up 1% and underlying operating profit down 12%, both at constant currency. Client transaction activity rose by 6% compared to prior year and travel spend increased by 3% at constant currency.

Towards the end of the reporting period, we successfully completed our discussions with the Government of Canada about the lower levels of business activity and different business mix compared with original expectations. These discussions resulted in a mutually satisfactory conclusion and will result in the contract returning to profitability in FY16.

Another of the challenges referred to earlier in the year has been the faster-than-anticipated speed of switch by our clients to online self-booking of travel. Client adoption of this booking method continued to grow during the period with 47% of all client travel bookings self-booked during the year (2014: 42%), a small increase from the 46% reported for the first half of the year. We responded by further reducing the size of the Group's network during the period and reorganising so that increasingly clients are serviced more efficiently via staff based in hub locations or by those working from home. As always, however, the Group aims to provide a superior level of service to all its clients, tailor made to meet their specific requirements. Clients will continue to be able to rely on the expertise and considerable experience of our staff to devise innovative and effective travel and expense management solutions to help them meet their objectives, and to provide them with valued support when unexpected events disrupt their travel plans. These structural changes are amongst a number of ongoing initiatives designed to reshape our business over the next few years. Our aim is to 'get ahead of the curve' as we seek to mitigate the effect of the short-term challenges that we face and ensure we benefit from the changes taking place in our industry.

While the Group has undoubtedly been severely buffeted by the headwinds created by these and other challenges, we remain committed to our strategic priorities, namely:

§ Managed travel- 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

§ Software as a Service (SaaS) - To develop a SaaS business focused on providing travel, expense and payment solutions to existing and new clients, either direct or through third party travel and payment providers

Our focus on Meetings, Group & Events (MGE) is showing encouraging progress. For many organisations, MGE has previously been an unmanaged area of client expenditure. We are now offering real benefit to clients - even those with established managed MGE programmes - through improved purchasing power and the benefit of our expertise and experience in this area. Notable amongst MGE new business secured during the financial year are clients Ericsson, EY, Kingfisher, NATO, NetApp, Norgine and Unilever. We have a good pipeline of prospective new MGE business, both within and outside our existing client base.

Similarly, our targeting of companies in the Energy and Marine sectors for the provision of specialised travel services is proving beneficial. The arrangement and cost-effective management of complex travel draws on the considerable skills and experience of the Group's travel consultants and, like MGE, this is an area in which the Group has an enviable track record for outstanding client service and delivery, at a time when our clients continue to maximise the value of their travel while reducing costs. We won new business during the period with a number of companies including Baker Hughes, Orica and Subsea 7. Notwithstanding the cost pressures these sectors are experiencing with the fall in oil prices, we continue to see a strong new business pipeline in FY16.

We also made considerable progress during the period in other areas winning new clients and securing expanded contracts with existing clients including Allianz, MBDA, NATO and Yahoo. Once again, the Group signed more business than it lost and because of our relentless focus on delivering superior service at all times, we maintained our consistently high client retention rate.

Towards the end of the year, we launched a new brand called Fraedom. It is designed to take advantage of marketing all our Software as a Service (SaaS) and related technology operations under one trade name. Fraedom was successfully launched at the Business Travel Show in the UK where it received considerable interest. We look forward to launching a number of exciting new initiatives under the Fraedom brand as we seek to accelerate the growth of our SaaS business. Going forward, our managed travel services will continue to trade under the HRG brand while our SaaS and technology offerings will be sold via Fraedom. As part of this process, we also refreshed the Hogg Robinson Group plc brand.

One of the specific financial priorities that we identified last financial year was to lower the Group's cost base to reinvest in operations by reducing the Group's locations, streamlining our back office and by optimising call centre and online services. We have made significant progress in reshaping and restructuring our business. Actions we initiated in FY15 at an exceptional cost of £7.3m (before pension curtailment credit of £1.0m), which included closing offices in Switzerland, Germany, the Nordics, Canada and the UK, together with the reorganisation of several finance and administrative functions, saved £2.6m in the year and will realise annual cost savings of £8.7m in FY16 and beyond. Our restructuring actions will continue over the next 2-3 years as we target further cost savings of £20m to improve the Group's long-term competitiveness and as we shape our business to match the needs of our clients and the changing dynamics of our industry.

As a result of these cost reduction actions, we have once again had to say goodbye to a number of our colleagues over the last year, many with long service. It is always difficult to see colleagues leave and I thank them all for the service they have given to the Group and wish them well for the future. I would also like to take this opportunity to thank all of our staff for their hard work and commitment.

Another financial priority in recent years has been to reduce net debt. Our medium-term objective has been to lower net debt / EBITDA into the range 0.7-1.0 times. Through continued good free cash generation, I am pleased to report that we reached our target range during the period, reducing year-end net debt by 16% from £65.3m to £54.7m. Our net debt is now equivalent to 1.0 times EBITDA for the last 12 months (2014: 1.1 times). This gives the Company greater financial flexibility going forward.

The Board

In January 2015, we announced that Philip Harrison would be leaving to take up an appointment outside our industry. On behalf of the Board, the executive management team and all staff, I would like to express our sincere thanks to Philip for the very considerable contribution he has made to the Group during the time he has been with us. All of us in Hogg Robinson wish him the very best for the future.

After nine years as Chairman of the Group, John Coombe will be retiring from the Board at our next Annual General Meeting. On behalf of the Board and everyone at Hogg Robinson, I would like to thank John for the significant contribution he has made to our Company during his tenure. John has been a fundamental part of the Hogg Robinson story since our IPO in 2006 and we wish him well.

Summary

We faced a number of significant challenges this year any one of which might not have set us back significantly but, coming together within a short period, resulted in a fall in the Group's earnings for the period. However, we recognised the issues early in the year and quickly initiated actions to mitigate their effect. During the year, we also accelerated the reshaping of our business to benefit from the opportunities and changes taking place in our industry. We were pleased with the improvement in the Group's performance during the second half of the year.

Business travel continues to grow. According to the World Travel and Tourism Council, the global business travel market is expected to grow at a rate of 3.2% per annum during the period to 2024, with Europe and North America predicted to grow at 2.1% and 2.6% per annum, respectively. We are encouraged by the new business signings we have made in the period and the fact that the Group's consistently high client retention rate has been maintained. All of the above gives us confidence that our strategy remains the right one to help us ensure that we are well positioned for the future.

Outlook

We expect further recovery in the UK and North American travel markets during FY16 while conditions in Continental Europe and Asia Pacific will remain consistent with FY15. Our strategy for growth is unchanged. We will continue to restructure our business and adjust our cost base as appropriate. These self-help initiatives, coupled with the strength of our new business pipeline and the positive developments to our contract with the Government of Canada, give us confidence that the Company will make further progress through the rest of the year.

David Radcliffe

Chief Executive

Financial results

Revenue of £330.1m was down 3% as reported, comprised of an increase of 1% at constant exchange rates offset by a 4% reduction through adverse currency movements. Underlying operating profit, which is before the amortisation of acquired intangibles and exceptional items, decreased by 14% from £49.3m to £42.5m, or by 12% at constant exchange rates, and represented a margin decline from 14.5% to 12.9%. Underlying profit before tax was down by 15% to £30.5m, while underlying EPS fell by 15% from 7.8p to 6.6p.

Reported operating profit declined by 9% to £35.2m. Reported profit before tax was down by 8% from £25.3m to £23.2m and EPS fell by 13% from 5.3p to 4.6p.

Revenue per employee decreased by 8% from £69.7k to £64.1k. At constant exchange rates, this was a decrease of 4%. The greater mix of online business has meant that we have initiated further actions to improve our profitability to address this metric.

Year-end net debt reduced by 16% or £10.6m to £54.7m, equivalent to 1.0 times EBITDA for the last 12 months (2014: 1.1 times). This translates into gearing of 28.5% (2014: 34.1%). We continue to operate well within our banking covenants.

We have noted in the past that inflation and discount rates are volatile and that the current low interest rate environment increases the accounting valuation of pension liabilities. On an accounting basis, the Group-wide pre-tax pension deficits have increased by £78.2m to £258.6m (of which £240.0m relates to the UK scheme) as the impact of a further reduction in the discount rate was only partially offset by inflation rate changes and investment performance. On a post-tax basis, our Group pension deficits at the year end were £209.8m. In our latest UK triennial valuation, we have agreed a new ten-year recovery plan with the Trustees with annual deficit reduction payments decreasing by £1.0m to £7.2m in the current financial year and increasing in line with RPI thereafter.

The Group has a progressive dividend policy and the Board is recommending a 7% increase in the final dividend to 1.69p per share, resulting in a full-year dividend of 2.32p per share, an increase of 5% on the prior year. Our dividend is covered 2.8 times (2014: 3.5 times) by underlying EPS. The final dividend will be paid on 28 July 2015 to shareholders on the register at the close of business on 26 June 2015.

Operational Review

Client activity

Client travel transaction activity rose by 6% during the financial year, while client travel spend rose by 3% at constant currency. In terms of mix of travel bookings, air accounted for 48% per cent of all transactions, marginally up on prior year, hotel bookings showed a small decline to 27% while rail activity was unchanged at 17%.

A majority of our clients continue to manage their travel budgets tightly while seeking to gain incremental cost savings wherever possible. We saw further evidence of growth in client adoption of online self-booking of travel, particularly for simpler travel itineraries, as it offers lower booking fees which generally result in cost savings. Approximately 47% of all client travel bookings were self-booked during the year, up from 42% last year.

The close focus on rigorous control of travel expenditure by most clients has led to a shift in emphasis towards more consultative, advisory and data-related services. This has been evident across many industry sectors including Financial Services, Pharmaceutical, Manufacturing and Retail, but particularly in the Oil & Gas sector following the significant fall in the price of oil during the second half of 2014. These trends are offering additional revenue opportunities for the Group while helping the development of more strategic relationships with many of our clients.

One emerging trend during the period was that clients are focusing more on providing transparency and opportunities to internal departments to enable them to both benchmark their activity and spend, and increase travel-related savings. In addition to standard data and reporting, we are providing a greater level of insight and intelligence through dedicated outsourced analysts and specific project work. This is evidence of how mature travel programmes are becoming more sophisticated by targeting opportunities at cost centre or business unit level, rather than on a general basis, and moving beyond sourcing to demand management and travel avoidance.

There was also evidence of a growing trend by clients to consolidate their travel programmes through the incorporation of further geographic markets. Often these new markets include 'emerging' economies where clients are experiencing the most growth and with that rising costs. The Company has been engaging in productive discussions with many of its existing clients where they place a high degree of importance on receiving superior service and driving processes to support policy and compliance.

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.

Our focus on delivering bespoke travel management solutions, which lies at the heart of our business model, has resulted in our enjoying another successful year of client retention and new business. Like any global business, we lost some clients during the year. Nevertheless, we have maintained our consistently high client retention rate and grown our business with net new business wins.

We were pleased to welcome several new clients during the year while securing expanded contracts, in terms of both service and geography, with existing clients including Allianz, Baker Hughes, Ericsson, EY, Kingfisher, MBDA, NATO, NetApp, Norgine, Orica, Subsea 7, Unilever, Volkswagen Group and Yahoo. Notable amongst clients renewing their contracts with the Group were Astellas, DHL, Hess, HSBC, KPMG, Novartis, the UK Government and Volkswagen Group in Europe. Going forward we continue to see positive momentum and our pipeline of new business prospects remains very healthy, particularly in our strategic focus areas of MGE and Energy & Marine.

Travel Management (TM)

§ Revenue broadly unchanged at constant currency

§ Proportion of online self-booked travel up from 42% to 47%

§ New business wins in strategic focus areas

(1) Before amortisation of acquired intangibles and exceptional items

Europe

(1) Before amortisation of acquired intangibles and exceptional items

§ Strong growth in rail and hotel bookings

§ Further rationalisation of service network to core hub locations

§ Online self-booking of travel up from 36% to 43%

Revenue declined by 4% at constant currency. Underlying operating profit was down by £4.5m, including a £0.6m loss from currency movements. Client travel spend was 3% lower year-on-year in real terms and travel activity was up 4%.

Travel booking activity amongst our UK clients rose 5% compared to last year due in the main to a combination of new business wins during the second half of last financial year and this year, and underlying growth in UK Government business outweighing some client losses including Barclays. Client spend was 2% lower primarily due to the different business mix between new and lost business. The proportion of rail tickets booked by the UK business continues to grow at a faster rate than hotel or air. Rail transactions have grown by 12% compared with a 3% increase in hotel bookings and a decline of 2% in flight bookings. Corporate clients continued to move to online with 55% of all client travel bookings in the UK now self-booked, up from 50% a year ago. MGE volumes have increased by 11%, benefiting from new business and increased trading. In September 2014, we successfully provided travel services for the NATO conference held in Cardiff.

In the Nordic region, we saw significant improvement during the year, driven by Statoil, a new client we won during the second half of last year, and other new business wins during this year, partially offset by client losses and ongoing weakness in the SME market. Over our Nordic operations, client activity grew by 12% and client spend rose by 8% at constant exchange rates. Activity increased in Finland, Norway and Sweden but declined in Denmark. Trading across Oil & Gas sector clients weakened in the last quarter of the financial year. We will continue to monitor this closely to ensure that our operating costs remain appropriate. MGE revenue was ahead of prior year due to an increase in the number of projects, while margins improved. The order book for next financial year has also increased. Tight cost control remains a focus for our Nordic operations. As elsewhere, our Nordic clients have been attracted to the lower fees associated with online self-booking of travel, and we saw further growth in this booking method. Changes were made to our call centre operations during the period, supported by new technologies and telephony systems, and we have improved efficiency and the use of our capacity. These productivity improvements enabled the increase in transactions and the ongoing growth in adoption of online self-booking to be managed with a reduced headcount.

Most areas of our travel management business in Germany showed only modest improvement over last year. The key manufacturing segment of automotive production remains subdued, suffering from weaker end markets and ongoing macroeconomic uncertainties elsewhere in Europe. We were pleased to welcome a number of new clients while saying good-bye to others including GIZ. Following a retender process, we renewed and widened the scope of our contract with Volkswagen Group. Encouraging momentum in MGE continued through the year, with new cross-border business won from clients more than offsetting MGE associated with some lost clients. Our sport-related business had another good year, benefiting from Germany winning the World Cup. Cost reduction measures continued through the year including the closure of a number of locations as we consolidate our service network and lower headcount.

In Switzerland, client travel activity and spend fell sharply compared to prior year, with many clients trading down, particularly those in the SME segment. Our financial performance suffered as a result. As elsewhere in Europe, we closed office locations in the country and reduced headcount as we continued to move to a more centralised service configuration.

Client adoption of online self-booking continued to grow during the year, accounting for 43% of all bookings made in the region, up from 36% last year.

North America

(1) Before amortisation of acquired intangibles and exceptional items

§ Strong growth in travel management revenue and underlying operating profit at constant FX, excluding Government of Canada

§ Online self-booking of travel up from 56% to 58%

Revenue from the Group's North American operations rose by £13.0m or 20% at constant currency. Underlying operating profit was unchanged at constant FX but declined year-on-year by £0.3m due to currency movements. Earnings were also affected by losses incurred during the first year of operation of our contract with the Government of Canada. Client spend was up by 18% in real terms and travel booking activity rose by 15%.

The Company operates two businesses in North America: (1) travel management, and (2) loyalty, managing the redemption of credit card loyalty programmes for financial institutions.

Travel management revenue rose by 23% and underlying operating profit fell by 5%, both at constant currency. Booking activity amongst our travel management clients rose by 14% while spend was 20% ahead of prior year at constant currency. Our work for the Government of Canada, which started trading with us at the start of the financial year, accounts for a majority of the increases although new business wins secured in FY14, including BMO Financial Group, and strong organic growth from the existing client base also contributed to the overall pattern of growth. Excluding the Government of Canada, revenue increased 9%, underlying operating profit was up by 15% and travel spend rose 6%, all at constant currency, while booking activity rose by 3%. The macroeconomic climate in North America remains generally strong and business confidence is typically high amongst the Group's North American clients. However, there are variations by industry with clients impacted by the reduction in oil prices showing a somewhat different picture. Some clients are reducing staffing levels and travel expenditure. Across the region, client focus is centred on travel policy compliance and lower fares, with a demand for enhanced automated pre-trip approvals and real time data quality improvements.

As previously described, Government of Canada transaction activity and spend have been well below anticipated levels, while a higher proportion of travel bookings were self-booked online than forecast. The Company took action during the period to align staffing levels to current and predicted transaction activity and business mix. We successfully concluded discussions with the client and the contract will return to profitability in FY16.

Loyalty client transactions and billable minutes exceeded last year. We renewed our contract with one of our larger loyalty clients during the year and started trading with new loyalty client PenFed Credit Union during the second half of the year.

In an ongoing effort to reduce costs and create additional operational efficiencies, the Company consolidated its data centre operations in North America by closing an existing facility in Canada during the period. Work initiatives continue across our North American operations as the Group seeks to operate under a standardised workflow and data process for all corporate travel managed in the region.

Online self-booking of travel in the North America region continues to increase and now accounts for 58% of all bookings, up from 56% last year.

Asia Pacific

(1) Before amortisation of acquired intangibles and exceptional items

§ Weaker performance in Australia as demand for natural resources remains weak

At constant currency, revenue was lower by 6%. Underlying operating profit fell by £2.2m after a £0.2m currency benefit. Client spend rose 5% in real terms and travel transaction activity was lower by 3%.

The trading environment in Australia, the largest market for the Group in the Asia Pacific region, remained generally weak through most of the period. Business confidence for most of the Group's Australian clients continues to be low, particularly those whose fortunes are closely linked to the resources sector, with the slowdown in the Chinese economy having a direct effect on the business environment and resulting in a decline in the strength of the Australian dollar. Although the Company has little direct exposure to the Australian resources industry, the effects of the depressed economy have had a knock-on impact for clients in the Professional Services, Manufacturing and Government sectors, particularly amongst our mid-sized clients. Australia's revenue was down 25% at constant currency, travel booking activity decreased by 21% compared to prior year and travel spend was lower by 13% at constant currency. Online-self booking of travel by clients rose from 61% to 65%, with three-quarters of all domestic travel now booked online. We continue to focus on improving the automation of the online booking process and other initiatives, including home working, aimed at improving efficiency and lowering our operating costs in response to the growth in online and lower travel transaction activity forecast.

Revenue for Singapore grew marginally by 1% at constant currency compared to last year while travel booking activity rose 16%. Client adoption of online self-booking remains generally low amongst the Group's clients in Asia, as few are yet to mandate change to their booking procedures even for point-to-point business trips. However, we did see a rise in on-line booking from 3% to 9% amongst our Singapore-based clients. As elsewhere, tight control and reduction of travel expenditure are priorities for many of our clients served out of Singapore.

In Hong Kong, our revenue decreased by 5% at constant currency as we experienced some softness in trading. Our joint venture in mainland China performed steadily during the period.

Online self-booking of travel in the Asia Pacific region accounts for 47% (2014: 51%) of all bookings.

Spendvision

(1) Before amortisation of acquired intangibles and exceptional items

§ Underlying earnings performance distorted by adverse currency impact

Revenue in the period was up 15.7% and underlying operating profit rose by 16.7%, both at constant currency.

This period saw the first full year of operation of our service for the Government of Canada. Since going live in April 2014, over 100 departments of the Canadian Government and more than 300,000 employees are now able to use our expense management system.

Our aim is to accelerate the growth of Spendvision principally through new business. We invested an additional £2.3m during the period, of which £1.1m was sales and marketing related expenditure. As a result, we have seen a 19% increase in spend managed through the platform and a 9% growth in the number of customers accessing the technology. Amongst several new clients won during the period, we added BMO Financial Group as a new partner and now provide our expense management product suite on a white-label basis to its clients.

Towards the end of February 2015, we launched Fraedom, our new integrated technology and Software as a Service (SaaS) offering. Fraedom brings together more than 15 years' experience in both travel and expenses management technologies from the integration of Spendvision and the Group's travel technology business. Fraedom is focused on offering its clients simple and inexpensive software-based solutions. One of the first innovations from Fraedom is a simple, easy-to-use and inexpensive service that offers a one-stop process from initial online booking through to the reclaiming and payment of expenses.

Our mid-term strategy for our SaaS offerings continues to focus on expanding our presence in the UK, mainland Europe and Australasia.

Additional Financial Disclosure

Operating expenses

Reported operating expenses reduced by 2% to £294.9m.

Underlying operating expenses, which are before amortisation of acquired intangibles and exceptional items, reduced by 1% to £287.6m. At constant exchange rates, this represented an increase of 4%.

Staff cost savings from FY15 headcount reductions were offset by investment in increased staff numbers for the Canadian Government contract and in Spendvision.

Underlying operating profit

Underlying operating profit, which is before amortisation of acquired intangibles and exceptional items, reduced by 14% from £49.3m to £42.5m, or by 12% at constant exchange rates. Underlying operating profit margin reduced from 14.5% to 12.9%, as reported.

Exceptional items

The cost of exceptional items was £6.3m (2014: £7.0m). These related to planned cost reduction programmes, primarily in Europe. They are mainly in respect of redundancy and property exit costs (£7.3m), partly offset by a pension curtailment gain (£1.0m).

Net finance costs

Net finance costs reduced by £1.5m to £13.1m, reflecting the lower level of average debt.

Taxation

The tax charge for the year represents an overall effective tax rate (ETR) of 32% of the reported profit before tax (2014: 30%). The underlying ETR was 27%. We anticipate an underlying ETR of around 27% in future years.

EPS

Underlying EPS fell by 15% from 7.8p to 6.6p. Basic EPS fell by 13% from 5.3p to 4.6p.

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 £211.5m (2014: £216.4m) compared with £192.8m at the year end (2014: £190.3m). The return for the year was 20.6% (2014: 23.3%).

Cash flow

Free cash inflow, which is the change in net debt before acquisitions and disposals, dividends and the impact of foreign exchange movements on net debt balances, was £17.9m (2014: £24.8m).

Cash outflow in respect of working capital was £1.2m (2014: inflow of £6.2m). The net cash outflow related to interest was £5.0m (2014: £8.0m, including £1.7m of refinancing fees). Dividends received from equity accounted investments were £0.7m (2014: £1.0m). Tax paid in cash was £4.0m (2014: £4.2m) and net capital expenditure, which is primarily internal software development and office equipment, was £11.3m (2014: £14.3m). Cash costs for pension deficit reduction were £4.5m (2014: £10.3m). The cash outflow in respect of exceptional items was £8.3m.

In addition to free cash flow, other cash flow items related to £7.1m of dividends paid to shareholders during the year (2014: £6.7m) and £0.2m of adverse foreign exchange related movements (2014: £2.3m favourable).

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. The Group has fixed interest on £20m until February 2017. In addition, the Group has a £30m fixed rate loan, repayable by 2018, and additional uncommitted facilities amounting to around £18m at the year end.

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.

Net external interest costs of £5.0m were covered 10.7 times by EBITDA (2014: 9.6 times).

Pensions

The Group-wide pension deficits under IAS 19 have increased by £78.2m to £258.6m before tax.

The UK scheme deficit increased by £75.6m to £240.0m, primarily driven by a 1.1 percentage point reduction in the discount rate to 3.3%. 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 30 June 2013 and replaced with a defined contribution section.

The overseas schemes are primarily in Germany and Switzerland, where the deficits increased by £2.6m to £18.6m.

At the year end, there was a deferred tax asset of £48.0m (2014: £33.0m) relating to the UK deficit and an asset of £0.8m (2014: £0.2m) relating to the overseas schemes.

Share price

The closing mid-market price at the year end was 47p (2014: 78p). During the year, the closing mid-market price ranged from 39.4p to 78.9p per share.

(1) Excluding amortisation of acquired intangibles

Hogg Robinson Group plc

Consolidated Income Statement

For the year ended 31 March 2015

Hogg Robinson Group plc

Consolidated Statement of Comprehensive Income

For the year ended 31 March 2015

Hogg Robinson Group plc

Consolidated Balance Sheet

As at 31 March 2015

Hogg Robinson Group plc

Consolidated Statement of Changes in Equity

As at 31 March 2015

Hogg Robinson Group plc

Consolidated Cash Flow Statement

For the year ended 31 March 2015

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 2015 and 2014, 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 2015 and 31 March 2014. 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 2014 have been delivered to the Registrar of Companies and the Consolidated Financial Statements for the year ended 31 March 2015 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 HRG'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 HRG 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 HRG'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 HRG'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 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

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 (2014: 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 21% (2014: 23%) as explained below: