Hogg Robinson Group Regulatory News (HRG)

26 November 2014

Hogg Robinson Group plc

('HRG', 'the Company' or 'the Group')

Results for the six months ended 30 September 2014

Summary of results

First-half headlines

§ Revenue up 2% on a constant currency basis, down 4% reported, with a majority of the growth driven by new Government of Canada contract

§ Spendvision revenue up by 20% to £11.2m on a constant currency basis

§ Continuation of last year's cost base reduction initiatives with an additional £2m of cost savings anticipated this year

§ Profit before tax, including net exceptional costs of £1.6m (2013: £2.6m), down 19%, underlying profit before tax down 29%, reflecting short-term challenges for which action plans are in place

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

§ Increased investment in technology sales and marketing

§ Net debt reduced by 26% to £59m in line with strategy; equivalent to 1.1 times LTM EBITDA(3) (2013: 1.3 times)

§ Interim dividend held at 0.63p per share

Outlook

§ Restructuring actions to improve the Group's long-term competitiveness and enable us to benefit from the opportunities and changes taking place in our industry

§ H2 trading environment expected to remain broadly similar to H1, with conditions for our markets in North America and the UK positive overall, but weak in Continental Europe and Asia

§ Revenue in October was up 2% at constant currency compared to last year whilst trading in November to date has been in line with our expectations

§ New signings continue, and we welcome the recent appointment by NATO

§ The Board believes HRG will deliver a full-year performance in line with current market expectations

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

"Our strategy of growing our Managed Travel business and developing our Software as a Service business remains unchanged. Whilst there have been and continue to be near-term challenges, we have made good progress during the first six months of the current year in delivering on our medium-term strategic priorities. Our client retention and new signings bode well for the future, as does our healthy new prospect pipeline.

We expect market conditions to remain similar to the first half for the remainder of the year and for the full year we anticipate a performance in line with current market expectations."

Notes:

(1) Before amortisation of acquired intangibles and exceptional items

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

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

For further information contact:

Notes to Editors

Hogg Robinson Group plc (HRG) is the award-winning international corporate services company. Established in 1845 and headquartered in Basingstoke, Hampshire, UK, HRG specialises in travel, expense and data management underpinned by proprietary technology. With a worldwide network that comprises over 120 countries, HRG provides unparalleled global expertise and local knowledge in Europe, North America, Asia Pacific, Africa, Latin America and MEWA. Read the latest HRG news and search our archives.

www.hrgworldwide.com

A presentation for analysts and institutional investors will be held at 0900h GMT 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, 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 HRG's presentation team will be available at www.hrgworldwide.com by 1100h GMT 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 (HRG). 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 HRG, including amongst other things, HRG'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, HRG'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. HRG 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.

Overview

Market conditions during the first half remained consistent with those seen in the second half of last financial year, with further recovery in the UK and North America whilst Continental Europe and Asia remained weak. During the first half, client travel spend was 6% higher at constant currency with transaction activity ahead by 7% compared to prior year. Our headline results for the period showed revenue up 2% and underlying operating profit down 21%, both at constant currency.

During the first half of this financial year, HRG once again signed more business than it lost and we maintained our consistently high client retention rate. According to the World Travel and Tourism Council, the global business travel market is expected to grow at a rate of 3.4% per annum during the period to 2024, with Europe and North America predicted to grow at 2.7% and 2.9% per annum, respectively.

Our strategy, which involves growing our Managed Travel business and developing a Software as a Service (SaaS) business, remains unchanged. As highlighted in our Q1 IMS, however, our business is currently facing a number of challenges in the short term. We are accelerating a number of initiatives designed to reshape our business to mitigate these and to ensure we benefit from the changes taking place in our industry. The following is an update on the actions we are taking.

§ Government of Canada - lower activity than anticipated

While trading activity with the Government of Canada has grown steadily since launch in early April, the initial levels of business received were much lower and in a different shape to those which had originally been expected from them. We have therefore reduced our cost base significantly and are in discussions with the Canadian Government concerning future travel booking activity levels and the business mix.

§ Speed of switch to online self-booking of travel

Client adoption of online self-booking of travel continued to grow during the first half of this financial year. Approximately 46% of all client travel bookings made during the first six months were self-booked online by our clients, up from about 40% last year.

We are now seeing the rate of adoption of online self-booking accelerate and at a faster pace than originally anticipated. We continue to respond to this, making further reductions to the size of our network and reorganising so that geographical boundaries become less of a feature. Sadly, this has meant the departure of a number of HRG staff and we wish them well for the future.

There will always be a need for good, highly skilled travel counsellors offering a quality service. HRG employs some of the best people in the industry. Therefore, redeployment and home working continue to be a feature as we retain their skill set whilst lowering our cost base. Working in harmony with our clients' service preferences, we also continue to make greater use of the lower cost parts of our global network when it makes sense to do so.

As we continue to adapt to the changing dynamics of our industry, we anticipate that reduction of the number of HRG offices around the world and the delivery of our service through hub locations will be ongoing features in future years. As always, however, clients will continue to be able to rely on the depth of experience and expertise 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.

§

§ Softness in the SME market in Continental Europe

The SME market in Continental Europe remains weak and we anticipate that this weakness will continue into the second half of our financial year. We continue to size this part of our business to the current market opportunity.

§ Competitor pricing

Strong competitor pricing continues. However, this has been prevalent for many years and we are adept at facing the challenges that this presents. Our net new business wins during the first six months of the financial year is testament to HRG's ability to compete as it is also to the strength of our offering.

§ Strength of sterling

Sterling's strength against all the major currencies in which the Group's revenues are generated continues to have some translation effect, although the recent strengthening of the US dollar against sterling has eased this pressure a little. The general volatility of the pound against other major currencies is an issue that HRG shares with other UK-based companies operating around the world over which we have little control.

Whilst some of the above challenges create headwinds in the short term, we believe that the key operational and financial priorities we set out at the time of our FY13 results remain valid. However, we do recognise the need to increase the speed of change to help drive further growth in the business. Our focus for the remainder of the year is therefore to:

§ Lower the cost base to reinvest in operations by reducing HRG locations, streamlining our back office and by optimising call centre and online services

We have undertaken significant efforts to restructure and reshape our business. In FY14, we realised annualised cost savings of £7.0m. We now anticipate that actions we have initiated in the first half of this year at an exceptional cost of £2.6m will save a further £2m during the second half of this year and £4.0m annualised benefit in FY16. Further actions in the second half of this financial year will provide an additional £4.0m benefit in FY16. Our restructuring actions will continue over the next three years as we target further cost savings of £20m, as part of our response to fundamental changes in the industry and to improve long-term competitiveness.

§ Continue to reduce net debt

Our medium-term objective remains to lower net debt / EBITDA into the range 0.7-1.0 times. Through tight working capital management and good free cash generation, we have reduced net debt by 26% from £80.4m to £59.4m year-on-year, equivalent to 1.1 times EBITDA for the last 12 months and expect to enter our target range by the end of the current financial year.

§ Drive investment in technology roll-out

We planned to invest during FY15 in rolling out new technology products and hiring sales and marketing staff to help drive top-line growth in the medium term. During the first six months, we invested £0.8m and increased our sales and marketing headcount.

Update on progress against strategic priorities

We have made good progress during the first six months of the current year delivering on our medium-term strategic priorities.

(A) Grow our Managed Travel business

§

§ Increase our business through new service offerings

Meetings, groups and events (MGE) has been an area of expenditure that hitherto has been unmanaged for many organisations. Even those with established managed MGE programmes often see benefit from HRG's experience and expertise in this area. We are focusing on MGE and engaging in discussions with many of our clients to offer fee-generating advice on how to bring greater control and transparency to this area of expenditure, while maximising leverage and value. Notable amongst MGE new business secured during the first half of the financial year are clients Kingfisher and Norgine, and we have a good pipeline of prospective new MGE business, particularly within our existing client base.

§ Entering new markets

Our focus of targeting the provision of specialised travel services to companies operating in the marine, offshore and energy sectors is paying off. HRG's track record over many years of successfully managing complex travel has resulted in new business wins during the period with Baker Hughes, Orica and Subsea 7, adding to a roster that includes, amongst others, ConocoPhillips, DOF Marine, Statoil and Tullow Oil.

(B) Develop a Software as a Service (SaaS) business

Following the implementation of technology services for the Government of Canada and since going 'live' in April 2014, we have re-focused on further developing our end-to-end travel, expense and payables management suite of technology products and solutions. We are increasing our investment in sales and marketing in this important area of our strategy as we focus on the distribution of HRG's technology products through a SaaS business model. Our aim is to accelerate the growth of this higher margin part of HRG's business while seeking to lower costs and drive operational efficiency.

Summary

We have faced a number of challenges in the first half any one of which might not have set us back significantly but, coming together within a very short period, have resulted in a fall in the Group's earnings for the first half of the financial year. We are accelerating the reshaping of our business to benefit from the opportunities and changes taking place in our industry. 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.

Financial results

Revenue of £162.3m was down 4% as reported, or up 2% at constant exchange rates. Underlying operating profit, which is stated before net exceptional items of £1.6m (2013: £2.6m) and the amortisation of acquired intangibles of £0.5m (2013: £2.0m), fell by £5.2m to £17.5m resulting in the margin reducing from 13.5% to 10.8%. The 23% fall in underlying operating profit included a 2% reduction through adverse currency movements. Underlying profit before tax was down 29% to £11.3m while underlying EPS fell 34% to 2.3p.

Reported operating profit declined by 15% to £15.4m. Reported profit before tax was down by 19% from £11.4m to £9.2m and EPS fell by 21% from 2.4p to 1.9p.

We continue to demonstrate strong cash flow generation. Net debt reduced by £21.0m year-on-year and since 31 March 2014, it declined by £5.9m. One of our medium-term objectives, set out in our full-year results statement in May 2013, is to reduce net debt to 0.7-1.0 times EBITDA. Net debt of £59.4m at 30 September 2014 represented 1.1 times EBITDA for the last 12 months (2013: 1.3 times). 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 £9.1m since the year end to £189.5m as the impact of a further reduction in the discount rate was only partially offset by inflation rate changes and investment performance. In our latest 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.

Our progressive dividend policy remains unchanged. The Board has declared an interim dividend of 0.63p per share (2013: 0.63p per share). This dividend will be paid on 2 January 2015 to shareholders on the register at the close of business on 5 December 2014.

Current trading and outlook

Looking ahead to the second half of the year, we expect the trading environment to remain broadly similar to the first half, with conditions for our markets in North America and the UK positive overall, but weak in Continental Europe and Asia. Revenue in October was up 2% at constant currency compared to last year whilst trading in November to date has been in line with our expectations. Despite the limited visibility that is inherent for corporate travel management, the Board believes that HRG will deliver a full-year performance in line with current market expectations.

Looking further out, we continue to manage the business for the longer term. The significant restructuring actions that we are making are designed to improve the Group's long-term competitiveness and to enable us to benefit from the opportunities and changes taking place in our industry.

Operational review

Client activity

During the first half of our financial year, client travel transaction activity rose by 7% and client travel spend at constant currency grew by 6%. Air travel bookings accounted for 47% of all bookings in the first half, rail 16% and hotel 28%, all unchanged from last year. For the six-month period, air, rail and hotel bookings rose 8%, 8% and 7% year-on-year respectively.

With economic uncertainty and geopolitical considerations influencing clients' travel planning decisions across many geographic regions, clients are relying on our experience and expertise in reviewing travel policies to tighten cost controls and implement processes to maximise compliance, thereby providing revenue generating opportunities for HRG. By way of example, one of HRG's larger clients has introduced HRG TripPass™, a customisable trip approval tool, across many markets in EMEA, to enhance transparency to stakeholders and manage exceptions to policy and control more effectively.

Online self-booking of travel continues to gain approval and acceptance by an increasing number of our clients as it offers lower booking fees which generally result in cost savings. We saw a sharp increase in the rate of online adoption during the first six months of this financial year with approximately 46% of all client travel bookings made being self-booked online by our clients, up from about 40% last year. Amongst new clients, online adoption rates are generally high. While online self-booking of travel is becoming the norm for many clients for a majority of their travel transactions, there are times when travel is delayed or complications arise. At that point, our clients are quick to seek the help and reassurance provided by HRG's experienced travel consultants on a 24/7 basis.

The demand for more consolidated data, demonstrating trends and revealing opportunities for greater efficiencies and cost savings, continues to show strong growth. Likewise, consolidation of travel and related services, integration of technology and ongoing savings strategies have led to HRG playing an increasing role as advisor, outsourced management and change management specialist. We welcome these developments which often result in us working more strategically with our clients while providing attractive fee-generating opportunities.

Inevitably, we lose some clients from time to time but we continue to attract new clients and expand our relationships with existing clients. During the first six months of this financial year, new clients and expanded relationships of note include: Baker Hughes, Eisenmann, Kingfisher, Norgine, Orica, Subsea 7 and Yahoo. We are also delighted with the recently announced global NATO win.

Travel Management (TM)

(1) Before amortisation of acquired intangibles and exceptional items

Europe

(1) Before amortisation of acquired intangibles and exceptional items

Revenue was down by 4.3% at constant currency. Underlying operating profit fell by £2.9m, including a £0.2m loss from currency movements. Client travel spend fell by 3% year-on-year in real terms and travel activity was up 3%.

The pace of recovery of the UK corporate travel market slowed a little during the first six months of the current year. Amongst our clients, travel booking activity rose 3% compared to the first half of last year due in the main to new business wins during the second half of last financial year. Client spend was 2% lower owing to the different traffic 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 9% compared with a 3% increase in hotel bookings and a decline of 3% in flight bookings. Corporate clients have continued to move to online with 53% of all client travel bookings in the UK now self-booked, up from 46% a year ago. In September 2014, HRG UK successfully provided travel services for the NATO conference held in Cardiff. Tight cost control remains a focus for our UK operations.

Across our Nordic operations, we benefited from growth in Norway driven by Statoil, a new client that we won during the second half of last year. Client activity grew by 20% and client spend by 14% at constant exchange rates in our Nordic operations. The corporate travel market continues to be cost driven in Norway, Finland and Denmark with client base travel demands remaining at depressed levels and clients in all countries continuing to cut costs and move to online.

We continue to see weakness in the German market. This has affected our business in Germany, which showed a weaker performance compared to last year with booking activity, travel spend and revenue all lower year on year. Two areas that did show improvement were MGE, where we benefited from new business, and our sport-related business, which performed well as a result of Germany winning the World Cup. We are continuing to reduce our operating costs in Germany as we consolidate our service network and lower headcount.

In Switzerland, client travel activity and spend were sharply down on last year and, as a result, our financial performance suffered. Existing clients traded down, particularly those in the SME segment, while a few clients imposed travel freezes. In addition, the business felt the impact of some client losses during the second half of last year. 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 period, accounting for 40% of all bookings made in the region, up from 33% last year.

North America

(1) Before amortisation of acquired intangibles and exceptional items

Revenue was up by £6.9m or 21.5% at constant currency. Underlying operating profit declined by £1.4m including a £0.2m loss from currency movements. Client spend was up by 27% in real terms and activity higher by 19%.

HRG operates two businesses in North America: (1) corporate travel management, and (2) loyalty, managing the redemption of credit card loyalty points programmes.

Amongst our travel management clients, travel spend rose by 30% at constant currency while transaction activity was 25% ahead of last year's first half. Travel management revenue increased by 23% and underlying operating profit decreased by 48%, both at constant currency. This was due primarily to the Government of Canada which started trading with us in April this year, new business wins in FY14 as well as good organic growth from our existing client base. Excluding the Government of Canada, revenue rose 11%, underlying operating profit was up by 12% and travel spend increased 16%, all at constant currency, while booking activity rose by 13%. 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 noted earlier, Government of Canada travel transaction activity and spend have been well below anticipated levels. Action was taken in the period to align staffing levels to current transaction activity.

With few exceptions, loyalty client trading volumes have been relatively flat year-on-year, in line with our expectations. We will start trading with new loyalty client PenFed Credit Union during the second half of this financial year.

As part of our global effort to reduce costs and drive operational efficiencies, HRG North America is seeking ways to reduce its infrastructure footprint, particularly as it relates to data centre operations. We are currently in the process of reducing the number of service centres in North America which will improve the operating efficiency of our business and reduce overall costs.

Online self-booking of travel by clients continues to grow in the region, accounting for 58% of all transactions compared to 55% last year.

Asia Pacific

(1) Before amortisation of acquired intangibles and exceptional items

Revenue was down by 1.0% at constant currency. Underlying operating profit reversed from a profit of £0.4m last year to a loss of £0.4m this period including a £0.1m beneficial currency effect. Client travel spend rose by 8% year-on-year in real terms while travel activity was unchanged.

The trading environment in Australia during the first six months of the current financial year proved challenging for HRG and its clients as the local economy continued to show few signs of improvement. Heavy reliance on the resources sector, continued uncertainty regarding the economic slowdown in the Chinese economy and ongoing instability in the Middle East have had a significant impact on both business and consumer confidence. HRG Australia's travel booking activity was 18% lower and travel spend was down by 14% at constant currency, while online self-booking by clients rose from 62% to 66%. With the continuing growth in online booking and lower forecast travel activity, we are actively pursuing a cost reduction strategy involving headcount reduction and the servicing of clients through fewer locations. Our global focus on specialised travel services for companies operating in the marine, offshore and energy sectors, and on MGE, is beginning to show some encouraging traction in Australia and elsewhere in the Asia Pacific region.

HRG's Singapore business recorded flat revenue in the first half compared to last year while travel booking activity rose 13%. Although client adoption of online self-booking is low relative to other regions of our operations, we did see a sharp increase from 3% to 8% year-on-year with a number of clients now mandating online booking on point-to-point routes. Control and reduction of travel expenditure are priorities for many of our clients serviced out of Singapore.

Last year, we completed the acquisition of the minority interests of our joint venture operation in Hong Kong. During the first half of this financial year, we experienced some softness in trading in Hong Kong, with lower booking activity and travel spend by our clients. Our joint venture in mainland China performed steadily during the period.

Online self-booking of travel in the Asia Pacific region now accounts for 48% of all bookings.

Spendvision

(1) Before amortisation of acquired intangibles and exceptional items

In the six months ended 30 September, revenue grew by 20.0% at constant currency. Underlying operating profit rose by £0.1m or 4.2% at constant currency as we continue to invest in the business. The majority of our growth came from our Banking clients segment where we continue to see good demand for our services. In this reporting period, we saw the implementation of our Canadian Government integrated travel and expense software with over 170,000 traveller profiles being loaded and managed on the platform.

We have made further investments in the business to increase our new business pipeline as we seek to expand our market presence. With our existing expense software products, we secured new wins with Bridgestone and QBE in Asia Pacific, and with our new integrated travel and expense offering we have seen a small but significant win with The Global Fund that demonstrates our new modular offering. Year on year, we have increased investment expenditure by £0.8m in the first half and anticipate making further investments as we build out our sales pipeline.

Additional financial disclosures

Revenue

Reported revenue reduced by 3.6% to £162.3m, comprised of an increase of 2.4% at constant exchange rates offset by a 6.0% reduction through adverse currency movements.

Revenue per employee

Reported revenue per employee reduced by 10.1% from £34.6k to £31.1k. At constant exchange rates, this was a reduction of 4.5% and was mainly due to an increase in headcount following the implementation of the Government of Canada travel management business which, as stated earlier, has now been addressed.

Operating expenses

Reported operating expenses reduced by 2.3% to £146.9m.

Underlying operating expenses, which are before amortisation of acquired intangibles and exceptional items, reduced by 0.6% to £144.8m. This represented a 6.0% increase at constant exchange rates, comprised of a 6.0% increase in staff costs and a 5.8% increase in other expenses.

Staff cost savings from FY14 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 22.9% from £22.7m to £17.5m, or by 20.7% at constant exchange rates. Underlying operating profit margin reduced from 13.5% to 10.8%, inclusive of a 0.3% benefit from currency movements.

Exceptional items

The cost of exceptional items was £1.6m (2013: £2.6m). These related to planned cost reduction programmes, primarily in Europe. They are mainly in respect of redundancy costs (£2.6m), partly offset by a pension curtailment gain (£1.0m).

Net finance costs

Net finance costs reduced by £0.7m to £6.6m, primarily reflecting lower levels of average debt compared to the prior period.

Taxation

The tax charge of £2.6m (2013: £3.2m) for the current period represents an overall effective tax rate (ETR) of 28% of the reported profit before tax (2013: 28%). We anticipate an ETR on underlying earnings before exceptional items and amortisation of acquired intangibles of around 28% in future years.

EPS

Underlying EPS fell by 34% from 3.5p to 2.3p. Basic EPS fell by 21% from 2.4p to 1.9p.

Cash flow

Free cash inflow, which is the change in net debt before acquisitions and disposals, Employee Benefits Trust purchases, dividends and the impact of foreign exchange movements on net debt balances, was £11.2m (2013: £10.2m).

Cash inflow in respect of working capital was £2.1m (2013: outflow of £0.2m). The net cash outflow related to interest was £2.4m (2013: £3.2m). Tax paid in cash was £2.7m (2013: £2.1m) and capital expenditure, which is primarily internal software development and office equipment, was £6.5m (2013: £7.8m). Cash costs for pension deficit reduction were £1.1m (2013: £4.2m). Of the £1.6m charge in respect of exceptional items, £0.2m was paid in cash in addition to £1.4m of payments relating to the prior year exceptional charge.

In addition to free cash flow, other cash flow items related to £5.1m of dividends paid to shareholders during the year (2013: £4.7m) and £0.2m of unfavourable foreign exchange related movements.

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 CHF25m until November 2014 and 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 half year.

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 debt reduced by £5.9m to £59.4m and was equivalent to 1.1 times EBITDA for the last 12 months (2013: 1.3 times). This translates into gearing of 31.7% (31 March 2014: 34.1%), or 182% (31 March 2014: 147%) including the pension deficits and related deferred tax assets.

Net external interest costs were covered 9.9 times by EBITDA (2013: 9.1 times) on a rolling 12-month basis.

Pensions

The Group-wide pension deficits under IAS 19 have increased by £9.1m to £189.5m before tax.

The UK scheme deficit increased by £8.3m to £172.7m. The £3.7m increase in scheme assets was more than offset by a £12.0m increase in scheme liabilities. 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 increase in the overseas schemes was primarily in Switzerland, mainly driven by a reduction in the discount rate.

At 30 September 2014, there was a deferred tax asset of £34.2m (31 March 2014: £33.0m) relating to the UK deficit and an asset of £0.7m (31 March 2014: £0.2m) relating to the overseas schemes.

Related parties

Related party disclosures are provided in note 22 to the financial statements.

Foreign currency

The following principal exchange rates have been used in the financial statements:

* As at 31 March 2014

Going concern

The Board believes that the Group has access to adequate resources for the foreseeable future and has continued to prepare the Condensed Consolidated Half-Yearly Financial Statements on a going concern basis.

(1) Excluding amortisation of acquired intangibles

Hogg Robinson Group plc

Notes to the Consolidated Half-Year Financial Information

For the period ended 30 September 2014

1 General information

Hogg Robinson Group plc is an international corporate services company and specialises in travel, expense and data management underpinned by proprietary technology solutions and products.

The Company is a public limited company, incorporated in the UK under the Companies Act 2006. The address of its registered office is Global House, Victoria Street, Basingstoke, Hampshire, RG21 3BT, United Kingdom.

The Company is listed on the Official List of the UK Listing Authority and the London Stock Exchange, and its registered number is 3946303.

This condensed consolidated half-yearly financial information was approved for issue on 26 November 2014.

This condensed consolidated half-yearly financial information does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2014 were approved by the Board of Directors on 22 May 2014 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

This condensed consolidated half-yearly financial information has been reviewed, not audited.

2 Basis of preparation

This condensed consolidated half-yearly financial information for the half year ended 30 September 2014 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, Interim Financial Reporting, as adopted by the European Union. The half-yearly condensed consolidated financial report should be read in conjunction with the Annual Report and Financial Statements for the year ended 31 March 2014, which have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The Directors consider that, taking into account the projected cash flows and available facilities of the Group, the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors adopt the going concern basis for the condensed consolidated half-yearly financial information.

3 Accounting policies

A number of new EU-endorsed standards, which are listed below, are effective for periods beginning on or after 1 April 2014 and have been applied in preparing these condensed consolidated half-yearly financial statements. With the exception of new disclosure requirements, none of these have an impact on the consolidated financial statements of the Group.

- IFRS 10 'Consolidated Financial Statements'

- IFRS 11 'Joint Arrangements'

- IFRS 12 'Disclosures of Interests in Other Entities'

There are no other standards or interpretations that are effective for the first time for the financial year beginning on 1 April 2014 that would be expected to have a material impact on the Group. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

Other accounting policies adopted are consistent with those of the Annual Consolidated Financial Statements for the year ended 31 March 2014, as described in those statements.

Exceptional items are disclosed and described separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the Group. They are material items of income or expense that have been shown separately due to the significance of their nature or amount.

Income tax expense in the half-year period is accrued using the tax rate that would be applicable to expected total annual earnings.

4 Estimates

The preparation of condensed consolidated half-yearly financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing this condensed consolidated half-yearly financial information, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the Consolidated Financial Statements for the year ended 31 March 2014, with the addition of the estimation that is required in determining the half-year provision for income tax expense.

5 Principal risks and uncertainties

The principal risks and uncertainties affecting the Group were identified as part of the Strategic Report and the Financial Risk Management note set out on pages 20 to 21 and 61 to 62 respectively of the Hogg Robinson Group plc Annual Report 2014, a copy of which is available on the Group's website www.hrgworldwide.com. The Board's view is that these risks and the risk management policies in place remain substantially unchanged for the second half of the current financial year. These risks and uncertainties can be summarised as follows:

Operational risks

· Loss of a major client

· Volatility of client activity

· Loss of a supplier

· Retention of key staff

· Corruption or reputation risk

· Technology or systems failure

· Cyber

Financial risks

The reported results of the Group could be adversely affected by:

· Access to funding at affordable rates

· Cost and capital control

· Increased pension funding

· Changes to industry payment structures

· Foreign currency risk

· Interest rate risk

· Credit risk

· Liquidity risk

The Group's financial instruments, measured at fair value, are all classed as level 2 in the fair value hierarchy, which is unchanged from 31 March 2014.

External risks

· Significant economic or other crisis

· Competitive environment

There may be additional risks unknown to the Group and other risks, currently believed to be immaterial, which could turn out to be material. These risks, whether they materialise individually or simultaneously, could significantly affect the Group's business and financial results.

6 Seasonality

The Group's revenue and operating profit are affected by the seasonality of corporate travel business, with travel declining during the summer and Christmas holiday periods and, to a lesser extent, during Easter holidays, which are times when many corporate travellers are on holiday. Typically, the Group experiences the highest levels of revenue in the last months of its financial year, principally reflecting increased travel activity by its clients during this period.

7 Operating segments

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 performance of the operating segments is assessed based on a measure of operating profit excluding items of an exceptional nature. Finance income and costs 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 to the Executive Management Team, except as noted below, is measured in a manner consistent with that in the condensed consolidated half-yearly financial information.

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:

8 Operating expenses

Exceptional items

Exceptional items of £1.6m were incurred during the period and relate to planned cost reduction programmes in Europe. They were primarily in respect of redundancy costs of £2.6m, partly offset by a £1.0m pension curtailment gain that arose as a result of the cost reduction programmes.

9 Staff costs

10 Finance income and finance costs

11 Income tax expense

The tax charge is split as follows: