Hogg Robinson Group Regulatory News (HRG)

25 November 2015

Hogg Robinson Group plc

('the Company' or 'the Group')

Results for the six months ended 30 September 2015

Good first-half performance in line with expectations

Summary of results

Highlights

§ Revenue down a little less than 1% on a constant currency basis, down 4% reported, due to expected migration from classic to online booking and strong competitor pricing

§ Underlying operating profit margin up from 10.8% to 12.3% driven mainly by cost reduction actions

§ Profit before tax up 26%, including net exceptional costs of £1.1m (2014: £1.6m); underlying profit before tax up 15%

§ Fraedom(3) revenue up 10% with underlying operating profit up 17% on a constant currency basis

§ Net debt reduced by 5% to £56.5m in line with strategy; equivalent to 1.0 times last 12 months (LTM) EBITDA(4) (2014: 1.1 times)

§ Interim dividend up 8% to 0.68p per share

Current trading and outlook

§ Continued to trade in line with management expectations during the second half of the financial year to date

§ Ongoing recovery in the UK market with signs of improvement across continental Europe. Modest slowdown of growth in North America and weakness in Australia with decisive actions taken to restructure our Australian operations

§ The Board believes the Company will deliver a full-year performance broadly in line with market expectations

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

"This is a positive first-half performance, which reflects the ongoing work we are undertaking to reshape and realign the business to current and future market conditions. In particular, we are encouraged by our profit growth and the continued reduction of net debt. Fraedom continues to grow and it is pleasing to see the benefits of our proprietary technology continuing to win us business. We look to further accelerate its growth and invest in new technology across the Group. We will continue to develop the business and expect to deliver a full-year performance broadly in line with 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) All references to Fraedom in this results statement include only the operations previously known as Spendvision

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

For further information contact:

Notes to Editors

Hogg Robinson Group plc is an 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 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 the Company's presentation team will be available at www.hoggrobinson.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. 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.

Overview

Market conditions during the period have remained much as described in our full-year results announcement in May. The UK market continued to grow and we saw some signs of pick-up elsewhere in Europe. The Group's operations in France, Germany, Italy, Switzerland and the UK all delivered earnings growth year-on-year and benefited from actions taken to right size our businesses. However, we have seen some modest slowdown of growth in North America with total revenue flat year-on-year, although the region also experienced strong profit growth driven by a good performance in travel management. Overall, client travel booking activity was up 2% during the first half and client travel spend was 2% lower at constant currency.

As a whole, we delivered a good performance during the first six months of the financial year, in line with our expectations, giving confidence in the full-year outcome. At constant currency, revenue declined by a little less than 1% and underlying operating profit increased by 11%.

Across our travel management operations, in real terms, revenue fell by just over 1%. Strong competitor pricing continued and, as expected, we also saw further growth in client adoption of online self-booking of travel - 49% compared to 46% in the same period last year - although the rate of growth slowed. These factors resulted in further downward pressure on the Group's revenue. However, underlying operating profit in travel management was up 10% at constant currency, mainly driven by cost reductions resulting from our restructuring actions. These actions are aimed at improving the Group's long-term competitiveness and re-shaping our business to match the needs of our clients and the changing dynamics of our industry. Although margin pressure remains, the benefits of our proprietary technology continue to win us new business. This first-half performance once again serves to underscore that our travel management model does not rely on short-term revenue growth to improve profitability.

Fraedom continued to perform in line with our expectations, delivering a 10% rise in revenue and a 17% increase in underlying operating profit, both at constant currency. There is increasing evidence of large corporates and governments looking at ways to improve the efficiency of their overall payments and transaction processing procedures which bodes well for Fraedom.

Following our success last year in signing a number of new clients in the Energy & Marine sectors, including Baker Hughes, Orica and Subsea 7, we have seen several of these clients turn to us to help them reduce their costs as they seek to ride out the challenges presented by the lower oil price. In Meetings, Groups & Events (MGE), another of our focus areas for top-line growth, we continued to see further growth in new business bid activity and we signed new MGE business with several existing and new clients during the period including Aggregate Industries and Eversheds. In Government, we are delighted to have retained the Ministry of Defence as a client in the UK and we are pleased to have secured several exciting new clients including the International Committee of the Red Cross.

Our strategy for growing our core managed travel business continues to focus on developing relationships with new and existing clients where we are able to demonstrate our expertise and experience in helping to optimise the value of their travel while reducing overall expenditure. The provision of specialised travel services and our well-deserved reputation for providing real assistance to clients in the event of travel disruption are two areas helping drive managed travel growth.

We continue to maintain our consistently high client retention rate which is testament to our staff's ongoing focus on delivering excellent service that aims to meet the specific needs of each and every one of our clients around the world. Our new business pipeline is very healthy and we look forward to benefiting from recent client wins, some of which will only start to trade late in the second half of this financial year.

During recent years, we have made considerable changes to the way that we service our clients. For some time, we have been reducing the size of the Group's network and reorganising so that increasingly clients are serviced more efficiently via staff based in hub locations or by those working from home. During the second half of last financial year, we accelerated our plans to restructure the Group's operations as we seek to 'get ahead of the curve' through increased efficiency and lower operating costs. That work continued during the first half of this financial year and is ongoing. Savings of £4m will be realised in FY16 based on actions taken during this financial year. These actions will result in annualised cost savings of £7m in FY17 and beyond. Restructuring actions taken in FY15 will realise annual cost savings of £8.7m in FY16 and beyond. A majority of these savings are needed to offset lower revenue resulting from competitive pricing pressure and clients switching to self-booking. However, our commitment to providing a quality service to our clients remains absolute.

As we continue to generate free cash, we plan to reduce net debt to a point where we are comfortably within our target range of 0.7-1.0 times LTM EBITDA. With greater financial flexibility afforded by relatively low levels of debt, our medium-term priorities for surplus cash will be on investment in new technology to replace or upgrade legacy systems to improve operational efficiency and further lower our cost base, accelerating the growth of Fraedom and improving returns to shareholders.

Board changes

In May, Tony Isaac, Non-Executive Director and Chairman Designate, informed the Board that due to personal reasons he would no longer be able to take up this appointment. He stepped down from the Board as a non-executive director at the AGM in July following nine years of service. John Coombe continues to serve as Chairman of the Company until the process to recruit his successor has been completed. The process of finding a replacement is well advanced.

Following a thorough external search process, Michele Maher was appointed as Group Finance Director in June. Michele joined the Group in 1995 and has since held a series of senior operational and central financial positions, most recently as Finance Director Worldwide Travel Operations.

Current trading and outlook

The Company has continued to trade in line with management expectations during the second half of the financial year to date. The Board continues to believe that with the benefit of new business signings and our consistently high client retention rate, the Company will deliver a full-year performance broadly in line with market expectations.

Financial results

Revenue of £155.9m was down a little less than 1% at constant exchange rates, or down 4% as reported. Underlying operating profit, which is stated before net exceptional items of £1.1m (2014: £1.6m) and the amortisation of acquired intangibles of £0.3m (2014: £0.5m), increased by £1.7m to £19.2m resulting in the margin increasing from 10.8% to 12.3%. The 10% rise in underlying operating profit included a 1% decrease from unfavourable currency movements. Underlying profit before tax was up 15% to £13.0m while underlying EPS rose 26% from 2.3p to 2.9p.

Reported operating profit increased by 16% to £17.8m. Reported profit before tax climbed 26% from £9.2m to £11.6m and EPS was up by 37% from 1.9p to 2.6p.

We continue to demonstrate strong cash flow generation with net debt reducing by £2.9m year-on-year. 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 £56.5m at 30 September 2015 represented 1.0 times EBITDA for the last 12 months (2014: 1.1 times). Since 31 March 2015, net debt increased by £1.8m. The increase since the year end was principally due to working capital movements in the period of £4.3m outflow (2014: inflow of £2.1m) and a £2.4m increase in the cash cost for pension deficit reduction, entirely due to the phasing of payments. The FY16 cash cost for pension deficit reduction is estimated to be approximately £7m. We expect net debt at the year end to reduce year-on-year. We continue to operate well within our banking covenants.

We have noted in the past that small changes in inflation and discount rates can lead to volatility in pension deficits 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 decreased by £25.9m since the year end to £232.7m (of which £213.6m relates to the UK scheme), primarily driven by a 0.4pp increase in the discount rate to 3.7%.

Our progressive dividend policy remains unchanged. The Board has declared an interim dividend of 0.68p per share, up 8% on the interim payment a year ago. This dividend will be paid on 4 January 2016 to shareholders on the register at the close of business on 4 December 2015.

Operational review

Client activity

During the first half of our financial year, client travel transaction activity rose by 2% and client travel spend at constant currency fell by 2%. Air travel bookings accounted for 47% of all bookings in the first half, rail 17% and hotel 28%, all broadly unchanged from last year. For the six-month period, rail and hotel bookings rose 7% and 2% year-on-year respectively; the number of air bookings was largely unchanged.

Tight cost control and maximum value for money continue to be the mantra for a majority of our clients. As part of our cost saving recommendations, we continue to advocate to our clients a move to self-booking‎, particularly for the more simple types of itinerary. As a result of this migration, we saw a further increase in online adoption, to a new high of 49% from the previous 46% in the same period last year. It is worth remembering that whilst revenue to HRG may reduce in the short term as a result of this shift, once the cost associated has been re-directed or lost, we expect our margins to increase.

Delivering more effective control of staff travel through tighter compliance is a common objective for many of our client management teams and a key factor in helping to drive down the cost of travel. HRG's ability to provide reliable and accurate data and information to clients - often in real time - is an important component in this process. Key trends include:

§ Compliance to travel policies and sourcing the lowest price is enabling clients to drive greater savings from their travel budgets. A major focus continues to be placed upon the class of travel and the ticket type for air travel and the accommodation type for hotels. Disruption through the traditional travel distribution channels and availability of menu-based airline services has led to a more complex set of policy decisions for procurement managers and travellers at the point of sale. As a result of these industry changes, our clients rely on the value of our experience and expertise to guide them towards the best way to gain value.

§ Global and regional consolidation remains a priority for many clients as they drive consistent and standardised processes across all areas of travel procurement including service delivery models, booking technology, approval tools and travel policies. All of these areas are where HRG has a strong capability and track record.

§ One of the most significant trends is the inclusion of group travel and venue sourcing within managed travel programmes to grow volumes and improve leverage.

All of these trends are offering additional revenue opportunities for the Group, helping to offset the effect on our revenue of clients moving online and competitive pricing pressure, while encouraging the development of more strategic relationships with many of our clients.

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 period during which we have maintained our consistently high client retention rate while continuing to attract new clients and expand our relationships with existing clients. Like any global business, we lost some clients during the first half including Agilent, Ericsson, GDF Suez and Lenovo. During the first six months of this financial year, new clients and expanded relationships of note include Aggregate Industries, Allianz, AmerisourceBergen, Arriva, Eversheds, the Government of Canada, the International Committee of the Red Cross, Kentz (SNC-Lavalin), Shiseido, RBS and Swedbank.

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 0.2% while underlying operating profit rose by 9.3%, both at constant currency. Client travel spend increased by 2% year-on-year in real terms and travel activity was up 6%. Client adoption of online self-booking continued to grow during the period, accounting for 45% of all bookings made in the region, up from 40% last year.

There continues to be good momentum in the UK corporate travel market. Travel booking activity amongst HRG's clients increased by 8% in the first half compared to a year ago due to a combination of new business wins in the second half of last financial year and additional business from existing clients. Client spend was 3% higher, again due to rollover new business and extensions to existing client contracts. In recent years, we have noted the faster rate of growth of UK rail transactions compared to air and hotel. This showed signs of stabilising in the current period with rail accounting for 38% of travel bookings, hotel 32% and air 27%, unchanged from prior year. Online adoption continued to increase with 58% of all client travel bookings in the UK now self-booked, up from 53% last year. Over the last six months, the rate of adoption has been slower. In line with our strategy to build our MGE capability, it is pleasing to report that we benefited from increased expenditure and activity by a number of existing clients as well as from new business wins. Our cost reduction and efficiency actions, including the introduction of flexible working contracts, property reviews and re-alignment of sales and client management operations, continued as part of our overall restructuring initiatives.

Our Nordic operations showed an improvement in client travel activity in Sweden, Finland and Denmark, driven by growth in underlying business, partially offset by a decline in Norway which was impacted by weakness in the Energy & Marine market due to the lower oil price environment. Across the region, client activity rose by 2% while spend also increased by 2% at constant currency. Trading conditions in the SME sector have been difficult and we experienced volume and revenue declines in all markets except Finland. Tight cost control remains a focus in the region and we are adjusting our staffing levels to match forecast levels of travel activity, business mix and fee pressure.

With signs of macroeconomic stability returning in Germany, HRG saw some early indications of recovery in the corporate travel market during the first half, although the benefit of higher travel activity shown by many of our clients was offset by the rollover effect of some client losses in the second half of last financial year. In our sports-related business, year-on-year performance during the first half was made more challenging given the benefit to prior-year results of Germany winning the World Cup. As a result, across our German operations, client travel booking activity and spend in the first six months were down marginally year-on-year, as was our revenue. However, positive momentum in the growth of our MGE business continued. Notable new MGE business included a large project for an existing client, which involved HRG handling the travel logistics and hotel accommodation for more than 9,000 people as part of our client's 125-year anniversary celebrations. Online adoption continues to grow with online rates associated with new business wins significantly higher compared to lost business. We are beginning to see a positive impact from the closure of a number of branch locations and the restructuring of several back-office functions as part of our ongoing aim to further consolidate our service network and reduce headcount.

Switzerland has been a challenging market for us, primarily due to the rollover effect of client losses from the prior year. New business signings got off to a slow start this year. However, we are now delighted to welcome the International Committee of the Red Cross as a client. We have restructured how we do business in large parts of Switzerland as part of our ongoing cost efficiency programme. As a result, and as part of this restructuring, we have introduced home working and are looking forward to a more positive outcome for this business in the future.

HRG's operations in France showed a welcome uptick during the first half. Client booking activity and spend rose sharply year-on-year along with our revenue, helped by new business wins including MBDA and the effect of prior-period rollover wins including Autoliv, Prada, Subsea 7 and Yahoo. A favourable earnings outcome was helped by the benefits of cost-saving initiatives in finance, logistics and property. Further restructuring actions are ongoing.

North America

(1) Before amortisation of acquired intangibles and exceptional items

Revenue was down by 0.3% while underlying operating profit rose by 23.7%, both at constant currency. Client spend was down 8% in real terms and activity lower by 1%. Online self-booking of travel by clients accounted for 59% of all transactions compared to 58% last year.

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

Travel management revenue rose by 2% in the first half at constant currency. Following extensive discussions with the Canadian Government, we are pleased to report that we have restructured our service offering, sufficient that this prestigious client is making a positive contribution to the North American result. This favourable outcome has benefited the overall result of North America in the first six months. Many Oil & Gas industry clients reduced travel spend following the reduction on the price of oil. Several of HRG's larger North American clients are currently exploring travel freeze strategies for calendar Q4.

Client stability and retention in our loyalty business remains good. Of note, we renewed our contract with Orbitz during the period. Our long-standing business relationship with Scotiabank continues and we are expanding our business with Loyalty Edge. The new business pipeline remains strong and we are continuing to develop our value proposition in this attractive business area as we seek to offer true market differentiation.

During the first half of the financial year, we completed the closure of the Stamford office and reduced our office space in Charlotte. These actions are part of our ongoing restructuring actions aimed at reducing costs and driving improved operational efficiencies.

Asia Pacific

(1) Before amortisation of acquired intangibles and exceptional items

Revenue was down by 15.0% at constant currency. Underlying operating profit worsened from a loss of £0.4m last year to a loss of £0.7m this period including a £0.2m beneficial currency effect. Client travel spend fell by 12% year-on-year in real terms while travel activity was 19% lower. Online self-booking of travel in the Asia Pacific region now accounts for 45% of all bookings, down from 48% last year reflecting a change in client mix.

We continued to experience a challenging trading environment in Australia, the largest market for the Group in the Asia Pacific region, as the local economy remains generally weak. During the first half of this financial year, we felt the impact from the loss of a number of clients during the second half of last year and the first half of the current year, including Cricket Australia, Ergon and Whole-of-Australian-Government Travel Services. We have been disappointed with our performance in this country and, as a result, have changed both the management and the profile of our service offering. Our intention is to ensure that Fraedom plays a more prominent role in our service, whilst we will still retain our classic quality service offering from HRG. Alongside our ongoing cost reshaping, we anticipate a better performance in the near future.

Travel booking activity amongst HRG's Singapore's clients fell 2% in the first half compared to last year while travel spend decreased by 7% at constant currency as clients sought incremental cost savings in the period. Online self-booking by clients rose from 8% to 10%. Many clients in the region are tightening their travel compliance policies in order to steer staff travellers towards lowest fare carriers and restrictive fares. MGE continues to be a key growth area for Singapore. We are introducing a number of initiatives across our operations in Singapore, including greater use of technology, as we seek to improve the efficiency of our staff and lower operational costs.

Weak trading in Hong Kong continued during the first half, with lower booking activity and travel spend by our clients compounded by some client losses. Although new business activity is up strongly year-on-year, particularly in MGE, we are experiencing strong competitor pricing pressure. Our joint venture in mainland China continues to deliver a steady performance although transaction activity and travel spend in the first half declined compared to prior year.

Fraedom

(1) Before amortisation of acquired intangibles and exceptional items

In the six months ended 30 September, revenue grew by 10.0% at constant currency. Underlying operating profit rose by £0.4m or 17.4% at constant currency. During the period, key partner SunTrust Bank extended its contract. Our investment in the business to increase the sales pipeline has allowed us to win a number of new direct clients during the first half of this financial year including the Bank of England and Old Mutual Wealth in Europe, the Public Health Accreditation Board in North America and IAG Insurance Group in Asia Pacific.

Mobile technology continues to play a central role in the technology space and the consumerisation of corporate payments, expense and travel booking tools is becoming more prominent in the industry. In September 2015, we launched Smart Scanning on the Fraedom expense management platform, providing an easy process for users to link photographs of expense receipts to a transaction. FraedomGo, a software application which enables users to upload expense receipts using a mobile device while travelling, thereby saving administration time back at the office, was also launched during the period. We are continuing to invest in our proprietary expense management and payments technology.

Additional financial disclosure

Revenue

Reported revenue reduced by 3.9% to £155.9m, which was comprised of a decrease of 0.6% at constant exchange rates and 3.3% through adverse currency movements.

Revenue per employee

Reported revenue per employee increased by 0.6% from £31.1k to £31.3k. At constant exchange rates, this was a 4.0% increase and was mainly due to a decrease in headcount following planned cost reduction programmes.

Operating expenses

Reported operating expenses reduced by 6.0% to £138.1m.

Underlying operating expenses, which are before amortisation of acquired intangibles and exceptional items, reduced by 5.6% to £136.7m. This represented a 2.0% decrease at constant exchange rates, comprised of a 2.1% decrease in staff costs and a 1.9% decrease in other expenses.

Underlying operating profit

Underlying operating profit, which is before amortisation of acquired intangibles and exceptional items, increased by 9.7% from £17.5m to £19.2m, or by 10.9% at constant exchange rates. Underlying operating profit margin increased from 10.8% to 12.3%, inclusive of a 0.3% benefit from currency movements.

Exceptional items

The cost of exceptional items was £1.1m (2014: £1.6m). These related to planned cost reduction programmes across the Group and are mainly in respect of redundancy costs.

Net finance costs

Net finance costs increased by £0.1m to £6.7m, reflecting an increase in the finance costs relating to retirement benefit obligations.

Taxation

The tax charge of £3.0m (2014: £2.6m) for the current period represents an overall effective tax rate (ETR) of 26% of the reported profit before tax (2014: 28%). The underlying ETR was 26%. We anticipate an underlying ETR of around 26% in future years.

EPS

Underlying EPS rose by 26% from 2.3p to 2.9p. Basic EPS rose by 37% from 1.9p to 2.6p.

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 £4.2m (2014: £11.2m).

Cash outflow in respect of working capital was £4.3m (2014: inflow of £2.1m). The net cash outflow related to interest was £2.3m (2014: £2.4m). Tax paid in cash was £3.1m (2014: £2.7m) and capital expenditure, which is primarily internal software development and office equipment, was £4.7m (2014: £6.5m). Cash costs for pension deficit reduction were £3.5m (2014: £1.1m). Of the £2.7m cash outflow in respect of exceptional items, £0.8m was paid relating to current period charges and £1.9m related to prior period exceptional charges.

In addition to free cash flow, other cash flow items are related to share purchases of £0.6m made by the Employee Benefits Trust (2014: nil) and £5.5m of dividends paid to shareholders during the year (2014: £5.1m).

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 £16m 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 increased from March 2015 by £1.8m to £56.5m and was equivalent to 1.0 times EBITDA for the last 12 months (2014: 1.1 times). This translates into gearing of 28.9% (31 March 2015: 28.5%).

Net external interest costs were covered 11.3 times by EBITDA (2014: 9.9 times) on a rolling 12-month basis.

Pensions

The Group-wide pension deficits under IAS 19 have decreased by £25.9m to £232.7m before tax.

The UK scheme deficit decreased by £26.4m to £213.6m. The £10.1m decrease in scheme assets was more than offset by a £36.5m decrease in scheme liabilities, primarily driven by a 0.4pp increase in discount rate to 3.7%. 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.

At 30 September 2015, there was a deferred tax asset of £42.7m (31 March 2015: £48.0m) relating to the UK deficit and an asset of £0.8m (31 March 2015: £0.8m) 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 2015

Going concern

Having reassessed the Group's principal risks, the Board believes it is appropriate to adopt the going concern basis of accounting in preparing the interim financial information.

(1) Excluding amortisation of acquired intangibles

Hogg Robinson Group plc

Notes to the Consolidated Half-Year Financial Information

For the period ended 30 September 2015

1 General information

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

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 25 November 2015.

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 2015 were approved by the Board of Directors on 20 May 2015 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 2015 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct 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 2015, which have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Having reassessed the Group's principal risks, the Board believes it is appropriate to adopt the going concern basis of accounting in preparing the interim financial information.

3 Accounting policies

There are no standards or interpretations that are effective for the first time for the financial year beginning on 1 April 2015 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.

Accounting policies adopted are consistent with those of the Annual Consolidated Financial Statements for the year ended 31 March 2015, 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 2015, 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 64 to 65 respectively of the Hogg Robinson Group plc Annual Report 2015, a copy of which is available on the Group's website www.hoggrobinson.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 or transactions risk

· Loss of a supplier

· Retention of key staff

· Corruption or reputation risk

· Technology or systems failure

· Cyber-related risks

· Development and delivery of new business and new products

· Change in industry business model

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 2015.

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 Fraedom, previously known as Spendvision. The Group's internal reporting processes do not distinguish between the 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 condensed consolidated half-yearly financial information.

Total segment assets exclude cash and cash equivalent assets, current tax assets, financial 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 £1.1m were incurred during the period and relate to planned cost reduction programmes across the Group.

9 Staff costs

10 Finance income and finance costs

11 Income tax expense

The tax charge is split as follows:

Taxes on income in the half-year periods to 30 September are accrued using the tax rate that would be applicable to the expected total annual earnings by country. An effective statutory tax rate of approximately 28% is anticipated for the year ended 31 March 2016 (31 March 2015: 32%). An effective tax rate on underlying earnings before exceptional items and amortisation of acquired intangibles of approximately 26% is anticipated for the year ended 31 March 2016 (31 March 2015: 27%).

12 Earnings per share

Earnings per share attributable to equity holders of the Company were as follows: