.
26 May 2010
Hogg Robinson Group plc
('HRG', 'the Company' or 'the Group')
Preliminary Results for the year ended 31 March 2010
Strong performance delivered in line with expectations
Early signs of recovery
Summary of results
Years ended 31 March
2010 2009 Change
Revenue £326.8m £351.3m -7.0%
Underlying earnings (1)
- Operating profit £35.2m £34.6m +1.7%
- Operating profit margin 10.8% 9.8% +1.0%
- Profit before tax £28.4m £24.7m +15.0%
- Earnings per share 6.3p 4.7p +34.0%
Reported earnings
- Operating profit £28.0m £25.3m +10.7%
- Profit before tax £21.2m £15.4m +37.7%
- Earnings per share 4.4p 2.4p +83.3%
Dividend per share 1.2p 1.2p -
Net debt £77.5m £85.3m -£7.8m
Financial Highlights
Revenue 7.0% lower at £327m
- down by 11.6% at constant currency
Underlying profit before tax up 15.0% (£3.7m) to £28.4m
- underlying operating profit margin up by 1.0% to 10.8%
Underlying EPS up by 34.0% reflecting lower effective tax rate
Net debt down £7.8m to £77.5m
- net debt to underlying EBITDA (1) 1.7x (FY09: 2.0x); interest cover 13.9x
(FY09: 5.0x)
- free cash flow (2) of £16.2m (FY09: £44.0m); a return to more normal levels
- bank facilities committed to September 2011; preparations underway for
refinancing
Full-year dividend maintained at 1.2p per share; dividend cover of 5.3x (FY09:
3.9x)
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
Operational Highlights
Client activity levels are recovering
Client retention rate remains above 90%
Net new business wins and strong pipeline will help drive growth
Cost base aligned to current volumes
Europe - margin maintained despite lower travel activity; successful completion
of Nordic branch network consolidation
North America - moves into profit, reflecting full impact of cost reduction
programme; margin approaching the Group average
Sharp rise in client adoption of lower-cost technology solutions provides
improved value proposition to clients
David Radcliffe, Chief Executive of Hogg Robinson Group plc, said:
"HRG delivered a strong performance in the face of very challenging conditions
which is testimony to the resilience of the business model. We have continued
to control our cost base tightly without damaging our ability to benefit from
the upturn and by doing so delivered against expectations. Our fee-based
business model allows us to deliver first-class service and value to a
portfolio of clients who remain loyal to HRG. By focusing on excellent service
and helping clients control their travel budgets we have maintained our strong
client retention rate and secured net new wins.
"In the coming months, we anticipate an increase in travel activity from our
existing client base as businesses generally begin to benefit from any economic
recovery. Client revenues for April and May are expected to be similar to 2009
even despite the short-term closures of European airspace due to volcanic ash.
Looking further into the future, we will also see the benefit of new clients
coming on stream during the course of the year.
"While the pace and level of economic recovery remains unclear, the positive
momentum we are seeing is encouraging and, for the full year, we expect to
deliver further progress."
Contact Details
Hogg Robinson Group +44 (0)1256 312 600
David Radcliffe, Chief Executive
Julian Steadman, Group Finance Director
Angus Prentice, Head of Investor Relations
Tulchan Communications +44 (0)20 7353 4200
David Allchurch
Stephen Malthouse
Notes to Editors
Hogg Robinson Group plc (HRG) (LSE: HRG) was established in 1845 and is an
international corporate travel services company with headquarters located in
Basingstoke, Hampshire, UK. The HRG worldwide network, including contracted
partners, extends to nearly 120 countries.
HRG's focus on its clients is underpinned by three differentiators - people,
technology and breadth of service. The company has experienced management and
skilled operators together with proprietary technology which has been developed
in-house. HRG offers a range of services around the globe to deliver value,
cost savings, efficiency and innovation, without compromise.
www.hoggrobinsongroup.com
A presentation for analysts and institutional investors will be held at 0900h
BST today at Tulchan Communications, 85 Fleet Street, London EC4Y 1AE.
(Pre-registration for this event is necessary to comply with security
procedures at Tulchan Communications.) Copies of the presentation with audio
commentary from HRG's presentation team will be available at
www.hoggrobinsongroup.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 (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.
Chairman's Statement
The extraordinary financial crisis of the last 18 months and some tough winter
operating conditions in the Northern Hemisphere have required a demonstration
of the resilience we have assured shareholders, clients and staff that the
Company is capable of.
In extremely challenging business conditions, Hogg Robinson Group has delivered
another year of good performance. This has been achieved, not from growing
revenues, although we continue to win new clients, but from effective
management of the cost base. In practice this has meant taking tough decisions
about the organisational structure and the number of people who work in it. I
would like to pay tribute to the Executive team and staff who have made the
sacrifices necessary to preserve profitability while still delivering the
quality of service to our clients that they expect.
Results are in line with market expectations and underlying profit before tax
is well above last year. Taking into account the exceptional charge associated
with adjusting the business cost base, earnings are more than sufficient to
support our recommendation of a final dividend of 0.8p per share. Together
with the interim dividend of 0.4p per share, this maintains the payment to
shareholders at the same level as last year. We remain committed to a
progressive dividend policy and expect to increase dividends as soon as it is
prudent to do so.
Cash generation and debt levels continue to be a key area of focus for us and
whilst, as a result of management action, period end net debt is at an
acceptable level, average debt through the year is somewhat higher. We are
looking at ways to improve this. Meanwhile our existing bank facilities will
continue to provide adequate funding until they expire in September 2011.
Preparation is already underway for the renegotiation of these facilities,
which is likely to result in an increase in the cost of funds.
Shareholders will be aware that, in common with most companies, the deficit on
the Group's defined benefit pension schemes has risen substantially this year.
It reflects principally the latest investment values and interest rates at 31
March 2010 together with actuarial assumptions about longevity and inflation
over the life of the schemes. The deficit is inherently volatile. No new
members have been admitted to the UK scheme since 2003 and we monitor the
situation carefully having regard to the interests of the shareholders and
members of the schemes.
Our Chief Executive, David Radcliffe, will deal with the detail of the business
performance during the year in his Statement with further analysis in the
Operational Review and Consolidated Financial Statements. Suffice it to say,
without the decisive action taken by him and his colleagues responding to ever
changing markets, this year's results would not have been as good as they are.
For the future you can be assured your company will continue to respond to
market conditions and will place client satisfaction at the top of its agenda.
Combined with a keen attention paid to costs and margins, this should provide
the best possible result for you, the shareholders and the other stakeholders
in the business, especially our employees. The economic and business situation
has been improving, albeit at different rates in different markets and our
business clients are travelling more. This remains a highly competitive
service sector but with our best-in-class technology and highly committed
staff, Hogg Robinson Group is in very good shape to take advantage of improving
economic conditions.
My final words are to thank those who have left in the past year. Thank you
for your service and best wishes for the future. To my Board, Executive and
other colleagues, thank you for all your hard work, dedication often under
great pressure, and commitment to excellence that typifies this company.
Chief Executive's Statement
Overview
The financial year to 31 March 2010 (FY10) was as challenging as many of us
have seen. So, it is with great pride that I am able to report a set of
results that show how well the HRG team has performed. Our business model has
delivered for us at the same time as helping our clients reduce their travel
spend. Despite a 12% reduction in client travel spend and a 7% reduction in
our own revenues, we have managed our cost base to improve margins and deliver
results that were in line with expectations. As difficult as some of these
changes were, I am convinced that we now have a fitter company that is better
able to serve its clients and deliver lasting value to its staff and
shareholders.
The first half of our financial year was in many ways a continuation of what we
experienced during the last six months of the previous year as our clients
wrestled with the depth of the recession. They were increasingly willing to
change their travel policies, and often this created further opportunities for
HRG.
In the second half of the year, we saw the first signs that market conditions
could be easing, as clients in Asia Pacific began to relax travel policies.
Assuming that the global economy continues to recover, we expect a gradual
return towards pre-recession levels of travel activity to follow in Europe and
North America.
Two particular trends emerged during the year. Firstly, we saw a greater
adoption of technology solutions and, in particular, lower cost, online
self-booking tools, especially in North America. Secondly, even as clients
sought ways to reduce their overall travel expenditure they continued to demand
solutions that offered good value. We have continued to focus on delivering
first-class bespoke solutions which combine products, services and geographies
to achieve greater overall efficiencies and cost savings.
The question on most people's minds in this industry is not whether corporate
travel spending will recover but how quickly it will do so. By its very
nature, forward visibility of corporate travel bookings is relatively limited.
As a result of the decisive actions that we have taken during the past year or
so, coupled with our stable client base and new client contracts, I am
convinced that HRG is very well positioned to grow. In doing so, we are
determined to deliver value to our clients and positive returns to our
shareholders.
Financial results
Revenue of £326.8m was down 7.0% as reported, or down 11.6% at constant
exchange rates. Underlying operating profit, which is before the amortisation
of acquired intangibles and exceptional items, was up by 1.7% to £35.2m,
representing a margin improvement of 1.0% to 10.8%. These figures include a
contribution of £1.4m from favourable movements in exchange rates. Aided by
significantly lower net interest costs, underlying profit before tax was up by
15.0% to £28.4m. Underlying EPS increased by 34.0% from 4.7p to 6.3p.
After including the amortisation of acquired intangibles and exceptional items,
reported operating profit was up by 10.7% to £28.0m; profit before tax was up
by 37.7% to £21.2m; EPS increased by 83.3% from 2.4p to 4.4p.
The year-end net debt reduced by £7.8m to £77.5m and represented a healthy 1.7x
underlying EBITDA (FY09: 2.0x), with interest cover of 13.9x (FY09: 5.0x).
Our existing bank facilities are committed until September 2011. Preparations
to renew these facilities have begun, but based on current market conditions,
we expect any renewal to be more expensive than today.
The Board is recommending a final dividend of 0.8p per share to leave the
full-year dividend unchanged at 1.2p per share. Our dividend is covered 5.3x
(FY09: 3.9x) by underlying EPS. The final dividend will be paid on 2 August
2010 to shareholders on the register at the close of business on 2 July 2010.
Outlook
In the coming months, we anticipate an increase in travel activity from our
existing client base as businesses generally begin to benefit from the economic
recovery. This should be supplemented as new clients come on stream during the
course of the year. Despite the short-term closures of European airspace due
to volcanic ash, client revenues for April and May are expected to be similar
to 2009. For the full year, we expect to deliver further progress.
David Radcliffe
Chief Executive
Operational Review
Market overview
From a macro-economic perspective, data from the International Monetary Fund,
the International Air Transport Association (IATA) and STR Global all suggested
that the recession was easing as 2009 came to an end. While no one data set
correlates directly with our business, we did see a similar pattern of recovery
and the second half of our financial year was better than the first half.
Client activity
The two consistent priorities for our clients during the year were to reduce
overall travel spend while retaining excellent service and value for money.
Clearly, the pressure on airline ticket prices and hotel room rates has
delivered major savings, but there were other opportunities as clients were
increasingly prepared to change their own behaviour.
Travel spend across our global client base was down 12% compared to the prior
year (down 17% at constant exchange rates) as most clients focussed on cost
reduction. Lower volumes translated into a 7% reduction in our own revenue
(down 12% at constant exchange rates). A number of specific trends emerged,
including:
Stronger compliance - through travel authorisation processes, pre-trip
reporting tools and closer direction and control of hotel bookings comparable
to that for air travel
Improved data analysis - essential in the pursuit of savings opportunities
Stronger control of meetings management
More online and self-booking - particularly for less complex travel
Increased use of regional service centres - offering lower cost options
The recent disruptions caused by the ash emitted by Iceland's Eyjafjallajökull
volcano, which resulted in an unprecedented shutdown of European airspace,
proved once again the value that our clients place on HRG, especially in a
crisis. We estimate that about 40,000 clients' travellers were originally
stranded as a result of the disruption. We worked tirelessly to provide our
clients with alternative travel itineraries wherever possible. Clients now
better appreciate the value we give to them and relationships have been
cemented as they know they can turn to HRG when times get tough. We have
received many accolades and notes of appreciation from our clients and have
heard many incredible 'war stories' from our clients and staff on 'the front
line'. Our warmest thanks and appreciation go to our staff for the efforts,
often voluntarily, which they undertook.
As a direct result of our continuing client focus, we have enjoyed another
successful year of client retention and new business. Our client retention
rate remains above 90% and we continued to grow our client base with net new
business wins over the year.
Amongst many new clients that we welcomed during the year were Altana,
Bertelsmann, Department for International Development, Discovery
Communications, Evonik, KKR, Novartis, Scottish Enterprise Department,
Volkswagen, Wells Fargo and Wincanton. We also secured expanded contracts with
existing clients such as Abbott Laboratories, BNP Paribas, Diageo, Ericsson,
Ernst & Young, GDF Suez, Hess, HSBC, P&G, Pfizer, SGS Group and Wyeth.
Noteworthy contract renewals included Armani, BMW, Bombardier, British Energy,
CMHC, Credit Suisse, Diehl Stiftung, DuPont, GFK, GTZ, Hess, KPMG, Lloyds
Banking Group, MAN Group, National Australia Bank, Next, Nordea, Nycomed,
Province of Ontario, Roche, Schlumberger, Tesco and Vinci.
Our sales pipeline remains strong and spans a range of industries. One of our
key strengths is the breadth of our client portfolio, with no single client or
client sector accounting for a significant share of client revenue.
Corporate Travel Management
Europe
Years ended 31 March 2010 2009 Change
Revenue £229.6m £257.9m -11.0%
Operating profit £21.9m £25.0m -£3.1m
Underlying operating profit (1) £28.1m £32.0m -£3.9m
Underlying margin (1) 12.2% 12.4% -0.2%
(1) Before amortisation of acquired intangibles and exceptional items
Revenue was down by 14.2% at constant currency. Underlying operating profit
fell by £3.9m, despite a £0.9m benefit from currency movements. The overall
declines in revenue and operating profit reflect the impact of the global
recession on our clients, with travel activity and patterns impacted by a
combination of headcount reductions and travel embargoes.
Operational restructuring and cost reduction was a key focus during the second
half of the previous financial year as corporate travel activity levels
declined, and remained so in the period under review. We have reduced our
operating costs to match lower client activity whilst at the same time ensuring
service levels were maintained at high levels and not adversely impacted. We
recognised an exceptional charge of £3.3m for restructuring initiatives to
reduce costs in the Nordic region and the UK. Both of these initiatives are
now complete and we are beginning to see the benefit of these actions. We
continue to evaluate our network of branch offices throughout Europe,
particularly those serving SME clients in the Nordic region, as we increasingly
focus on large multinational managed clients.
Our UK business returned another steady performance in the face of challenging
conditions despite lower revenue, particularly amongst its Banking and Finance
clients. We doubled the number of our UK travel consultants working from home
during the year and this, combined with increased flexibility of telephone
call-flow switching, helped us to further develop our 'virtual' service network
and reduce our operating costs. Branch network rationalisation continues with
focus on core 'hub' and 'specialist' locations covering rail, hotel and 24/7
support.
In our German business we also reduced costs during the year in line with lower
activity levels. Year-on-year performance during the first half was made more
challenging given the benefit to prior-year results of the Euro 2008 football
championships. However, the second half showed a strong recovery with
increasing evidence of clients starting to return to pre-recession levels of
travel activity. Excellent progress was made during the year in re-shaping and
re-positioning our German operations to focus on the large managed corporate
client market. This has already been rewarded with new client wins including
Volkswagen and Evonik.
North America
Years ended 31 March 2010 2009 Change
Revenue £69.3m £67.6m +2.5%
Operating profit/(loss) £6.1m (£1.3m) +£7.4m
Underlying operating profit (1) £6.8m £0.7m +£6.1m
Underlying margin (1) 9.8% 1.0% +8.8%
(1) Before amortisation of acquired intangibles and exceptional items
Revenue was down 4.9% at constant currency. Underlying operating profit grew
by £6.1m, including a £0.6m gain from currency movements, as the benefits of
our cost reduction programme began to flow through.
The decline in travel revenue on a constant currency basis reflects the impact
of the global economic downturn on our clients, particularly during the first
half of the financial year. Online travel bookings made by clients using HRG's
booking tools rose from 29% to 41% year-on-year, providing further evidence of
the change of business mix in this highly competitive market which tends to
favour transaction fees. A general trend towards online booking necessitates
efficient systems capable of dealing with high volumes of lower price
transactions. HRG is well positioned to meet this challenge having invested in
this area a few years ago.
We have restructured our North American operations through a variety of
measures, including reducing the number of office locations, introducing more
sophisticated and flexible telephony and transaction processing systems, and
increasing the number and proportion of travel consultants working from home.
All these initiatives have contributed to the sharp rise in underlying
operating profit margin.
Our consumer business, which manages the redemption of credit card loyalty
points for several Canadian banks, performed well during the year as an
increasing number of cardholders redeemed their points for travel rewards. We
have also recently launched a new online redemption product to help drive
growth in this area.
Asia Pacific
Years ended 31 March 2010 2009 Change
Revenue £16.7m £16.0m +4.4%
Operating loss (£1.1m) (£1.0m) -£0.1m
Underlying operating loss (1) (£1.1m) (£1.0m) -£0.1m
Underlying margin (1) -6.6% -6.3% -0.3%
(1) Before amortisation of acquired intangibles and exceptional items
Revenue was down by 8.0% at constant currency.
In Australia, our largest market in the region, we completed the changes to our
management team and operational structure. We strengthened our sales teams in
the key states of New South Wales, Western Australia, Queensland and Victoria.
Our contract with the Queensland Government to provide a fully-integrated
travel management system was implemented successfully with mandated roll-out to
key departments. This is having a positive impact on this region's results as
activity levels increase.
We have seen a strong recovery amongst our Singapore-based clients with
activity levels returning to pre-recession levels. Clients in the Banking and
Finance sectors have been the first to show volume recovery. Singapore is fast
establishing itself as a key hub for client travel consolidation programmes
with experienced staff, good language skills and a pro-business environment all
acting as catalysts.
We are encouraged to note an increasing demand amongst our North American
clients for consolidated travel service offerings across the Asia Pacific
region. We are beginning to implement a multi-country service consolidation in
Singapore for one of our larger Manufacturing sector clients, having overcome
the inevitable complexities resulting from multiple language, cultures and GDS
sources.
Our joint ventures in Hong Kong and mainland China both showed similar signs of
recovery to that seen in Singapore. As associates, their results are not
included in the table above.
Spendvision
Years ended 31 March 2010 2009 Change
Revenue £11.2m £9.8m +14.3%
Operating profit £1.1m £2.6m -£1.5m
Underlying operating profit (1) £1.4m £2.9m -£1.5m
Underlying margin (1) 12.5% 29.6% -17.1%
(1) Before amortisation of acquired intangibles and exceptional items
Revenue was up 5.1% at constant currency. Underlying operating profit fell by
£1.5m including a £0.2m benefit from currency movements, following a year of
consolidation during which we increased investment in resources for product
delivery and customer support.
Spendvision is our proprietary innovator of transaction management solutions
including end-to-end expense management. Its online technology provides
semi-automated expense claims processing to employees while offering a company
enhanced control and visibility of its indirect expenses.
The Spendvision business continued to expand during the year. Spendvision
technology is now operating with clients in nearly 130 countries and the
software platform is available in 15 languages. During the year, we opened an
office in Singapore to support growth in Asia Pacific and established a joint
venture in Japan to drive the Spendvision platform into the Japanese market.
We also introduced several new technology modules during the year.
In late September 2009, we announced an exciting partnership with Visa. Work
has progressed well since then and Visa has now launched its IntelliLink Spend
Management product, a white-label version of Spendvision's platform, providing
a new global information tool which offers extensive reporting and expense
management capabilities for organisations of all sizes on a single scalable
platform, integrating with the entire suite of Visa B2B payment products. This
is being rolled out to all Visa commercial card issuing banks around the world
and is a ground-breaking development for Spendvision.
Technology
HRG is developing a number of client-facing tools, including those which not
only allow clients to book travel quickly but which also focus on visibility
and keeping track of travel spend. With constant changes by suppliers to
travel content (e.g. real-time updates to fares and seat availability), coupled
with the need for more efficient and cost effective processes, technology
continues to remain a critical factor in the travel services market. With
travel budgets tightening during the recession, companies have switched their
focus from simply 'making booking easier and faster' to 'value' and, crucially,
how technology can help them make savings. Our existing technology and new
system developments allow us to demonstrate the value proposition to our
clients and are key parts of our offering.
We continued to develop and deploy our own technology during the year. The
focal point of our efforts in this area is HRG's Universal Super Platform (USP)
upon which all our travel booking software sits, enabling clients and suppliers
to fully integrate their systems seamlessly with HRG's software. The initial
development phase in relation to USP is now complete and USP has entered
operational use. Amongst a number of benefits, USP enables us to connect to
various travel service providers, as well as to hold and compile various
required data sets. USP thereby enables access to information and inventory
from a number of sources rather than placing sole reliance on an industry
platform. As suppliers explore new and different distribution methodologies,
our independent platform is ready to interface with them.
This year saw the release of two new versions of HRG Online, our online booking
tool. These were well received by clients and enhanced our capability of
offering an independent integrated solution to our clients as required. Our
product portal i-Suite, offering clients a gateway to HRG applications and
third-party products, is now used by over 200,000 users. In addition, new
releases of HRG Reporting (online tool providing clients with relevant key data
about their travel programmes) were launched, and new products HRG Profiler
(allowing the client to install and update their own travel profiles online),
HRG TripPassTM (automatic online trip authority) and HRG Control Centre
(product administration hub) were released.
The handling, capture and delivery of data have been vital to our clients this
year in the drive to control costs. Our new reporting suite enables our
clients to view critical data online in an intuitive way with both high level
dashboards and more detailed data views. In addition to these initiatives, our
own agency point-of-sale tool went into full operational use in one of our main
business travel centres. This roll-out will continue during the current
financial year.
At the end of the year we signed a deal with a customer to supply a branded
version of our online booking tool together with access to our other corporate
travel technology which will open new revenue streams for both parties. This
transaction takes HRG's technology offering into a new arena and positions us
well as an industry provider of selected technology products.
HRG's client-centric strategy means that we will work with any product that
meets our clients' needs or has been explicitly selected by the client. We
give our clients access to the self-booking tool where this is the most
appropriate approach. Where the travel itinerary is relatively straightforward
clients continue to make bookings directly. There are examples of clients who
already make 90% of their bookings online. This allows HRG to deploy resources
in other areas whilst allowing the client to manage their travel arrangements
directly and receive additional benefits from their relationship with HRG.
We continue to improve the quality and reliability of our IT infrastructure.
During the year we signed new contracts for global IP WAN (voice and data
traffic) services and continue to roll out our strategy of virtualisation of
our service structure.
HRG is focusing on products and solutions that meet the needs of the corporate
traveller, such as mobile services, video conferencing and diary management.
We are leading the way in technology amongst the global travel management
companies.
Additional Financial Disclosure
Revenue
The revenue decrease of 7.0% is comprised of a decrease of 11.6% at constant
exchange rates offset by a 4.6% increase from favourable currency translation.
Operating expenses
Operating expenses before exceptional items decreased by 7.8% (£24.9m) to £
295.5m. Personnel costs, which represent approximately two thirds of the
total, were down by 7.2% (£15.0m) and other expenses were down by 8.9% (£9.9m).
At constant exchange rates, operating expenses before exceptional items
decreased by 12.5%, which compares to a decrease of 14.7% in the average number
of employees.
Underlying operating profit
Underlying operating profit, which is before amortisation of acquired
intangibles and exceptional items, increased by 1.7% (£0.6m) to £35.2m. This
includes a benefit of £1.4m from favourable currency translation. The
underlying operating profit margin, which is not impacted by currency changes,
increased from 9.8% to 10.8%.
Exceptional items
The cost of exceptional items was £3.3m for the year, compared to a cost of £
5.6m in the prior year.
The prior year includes restructuring costs of £6.9m, a benefit of £1.6m from
unutilised accruals related to acquisitions in prior years and a cost of £0.3m
in respect of an adjustment to goodwill in Germany associated with recognition
of additional deferred tax assets on acquisitions in earlier years. This
latter item is offset by a deferred tax credit and therefore has no impact on
net earnings for the year.
Net finance costs
Net finance costs reduced by £3.0m to £7.0m, with favourable interest rates
reducing net external interest by £5.2m partially offset by £2.0m of higher
costs relating to pension accounting under IAS 19, Employee Benefits. There
was an additional cost of £0.2m due to changes in exchange rates.
Net external interest costs of £3.2m were covered 13.9 times by EBITDA (FY09:
5.0x). The average net debt during the year was very similar to the prior
year, with typical working capital requirements being much higher than the
levels reported at the year end.
The IAS 19 pension costs, which increased to £3.2m for the year, are expected
to increase by a further £0.4m in the year to 31 March 2011.
Taxation
The tax charge for the year represents an overall effective tax rate of 33% of
the reported profit before tax, compared to an overall rate of 41% in the prior
year. The effective tax rate for the year on underlying profit before tax was
30% compared to 36% in the prior year, primarily as a result of resolving a
number of open issues with tax authorities and the ability to recognise further
deferred tax assets.
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 the 12 month ends for the
financial year and exclude net debt, pension deficits and tax provisions.
Average net assets amounted to £209.4m (FY09: £211.3m) compared with £165.9m at
the year end (FY09: £173.8m). The return for the year was 16.9% (FY09: 16.4%).
Cash flow
Free cash flow, which includes all cash flow except acquisitions and disposals,
dividends and the impact of foreign exchange movements, was £16.2m (FY09: £
44.0m), primarily due to a fall in working capital and lower external
interest. Typical working capital requirements are much higher than the levels
reported at the year end. Capital expenditure increased by £1.7m to £11.1m due
primarily to continuing investment in North America and the impact of changes
in exchange rates.
In addition to free cash flow, the other major cash flow items are related to
dividends. Dividends paid in cash to shareholders during the year were £1.2m
compared to £12.0m in the prior year. Last year, only an interim dividend was
paid in cash. Looking forward, the recommended final dividend of 0.8p per
share will cost an additional £2.5m in cash.
Pension obligations
The Group's pension deficits under IAS 19 have increased by £61.1m to £126.4m
before tax.
The UK scheme deficit increased by £64.6m to £115.9m. The scheme assets
increased by £31.7m, primarily as a result of investment performance. The
scheme liabilities increased by £96.3m, with a lower discount rate adding £
66.7m and a higher inflation rate assumption adding £20.8m. Annual cash
contributions amount to 15.2% of pensionable salaries plus a deficit reduction
payment of £6.6m per annum. The total charge against profits increased by £
1.2m to £4.2m.
The overseas schemes are primarily in Germany and Switzerland, where the
year-end deficit decreased by £3.5m to £10.5m.
At the year end, there was a deferred tax asset of £32.4m (FY09: £14.4m)
related to the UK deficit and a further £0.7m (FY09: £1.2m) related to the
overseas schemes.
Funding and net debt
The Group's principal borrowing is from a £220m multi-currency revolving credit
facility (RCF) that is committed until September 2011. The RCF is used for
loans, letters of credit and guarantees with interest based on LIBOR/EURIBOR
plus a margin and mandatory costs incurred by the lenders. In addition, there
are uncommitted facilities, amounting to around £26m at the year end, which are
used for local flexibility.
The principal banking covenants for the RCF are measured twice each year, 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. The definition of EBITDA for covenant
purposes is not materially different to the definition used in these financial
statements.
Net debt at year end reduced by £7.8m to £77.5m, which was equivalent to 1.7
times EBITDA (FY09: 2.0x). Gearing was 45% (FY09: 47%), or 99% (FY09: 64%)
including the pension deficits and related deferred tax assets.
Based on our current forecasts, the Board believes that these facilities
provide sufficient headroom. Preparation is already underway for a
renegotiation of the Group's facilities which is likely to result in an
increase in borrowing costs.
Share price
The closing mid-market price at the year end was 31.5p (FY09: 15.5p). During
the year, the price ranged from 15.75p to 39.75p per share.
Summary income statement
Years ended 31 March 2010 2009
£m £m
Revenue 326.8 351.3
EBITDA before exceptional items 44.5 42.3
Depreciation and amortisation (1) (9.3) (7.7)
Underlying operating profit 35.2 34.6
Amortisation of acquired intangibles (3.9) (3.7)
Exceptional items (3.3) (5.6)
Share of associates and joint ventures 0.2 0.1
Net finance costs (7.0) (10.0)
Profit before tax 21.2 15.4
Taxation (6.9) (6.3)
Profit for the year 14.3 9.1
Summary balance sheet
As at 31 March 2010 2009
£m £m
Goodwill and other intangible assets 253.5 258.0
Property, plant, equipment and investments 17.5 17.9
Working capital (101.2) (93.7)
Current tax liabilities (net) (8.4) (7.8)
Deferred tax assets (net) 47.2 32.2
Net debt (77.5) (85.3)
Pension liabilities (pre-tax) (126.4) (65.3)
Provisions and other items (4.0) (8.3)
Net assets 0.7 47.7
Summary cash flow statement
Years ended 31 March 2009
2010 restated
£m £m
EBITDA before exceptional items 44.5 42.3
Cash flow from exceptional items (7.0) 0.6
Working capital movements 5.7 29.2
Interest paid (2.8) (6.9)
Tax paid (5.1) (3.8)
Capital expenditure (11.1) (9.4)
Pension funding in excess of EBITDA charge (7.6) (7.2)
Other movements (0.4) (0.8)
Free cash inflow 16.2 44.0
Acquisitions and disposals (0.3) 0.1
Dividends paid to external shareholders (1.2) (12.0)
Currency translation (5.8) (6.9)
Other movements (1.1) (0.1)
Decrease in net debt 7.8 25.1
Excluding amortisation of acquired intangibles
The comparatives in the summary cash flow statement have been restated to
separately identify cash flow from exceptional items.
Hogg Robinson Group plc
Consolidated Income Statement
For the year ended 31 March 2010
Years ended 31 March
Notes 2010 2009
£m £m
Revenue 1 326.8 351.3
Operating expenses 2 (298.8) (326.0)
Operating profit 28.0 25.3
Analysed as:
Underlying
operating profit 35.2 34.6
Amortisation
of acquired intangibles 8 (3.9) (3.7)
Exceptional items 2 (3.3) (5.6)
Operating profit 28.0 25.3
Share of results
of associates
and joint ventures 0.2 0.1
Finance income 4 0.2 1.3
Finance costs 4 (7.2) (11.3)
Profit before tax 21.2 15.4
Income tax expense 5 (6.9) (6.3)
Profit for the
financial year
from continuing operations 14.3 9.1
Profit attributable to:
Equity Shareholders
of the Company 13.4 7.4
Minority interests 13 0.9 1.7
14.3 9.1
Earnings per share 6 pence pence
Basic 4.4 2.4
Diluted 4.3 2.4
Hogg Robinson Group plc
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2010
Notes Years ended 31 March
2010 2009
£m £m
Profit for the financial year 14.3 9.1
Other comprehensive income
Currency translation differences (11.8) 17.6
Actuarial loss on pension schemes 11 (66.0) (23.4)
Deferred tax movement on pension liability 18.7 5.9
Other comprehensive (loss) / income for the year, net of tax (59.1) 0.1
Total comprehensive (loss) / income for the year (44.8) 9.2
Total comprehensive (loss) / income attributable to:
Equity Shareholders of the Company (45.7) 7.5
Minority interests 13 0.9 1.7
(44.8) 9.2
Hogg Robinson Group plc
Consolidated Balance Sheet
As at 31 March 2010 As at 31 March
Notes 2010 2009
£m £m
Non current assets
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