23 May 2012 Hogg Robinson Group plc ('HRG', 'the Company' or 'the Group') Preliminary Results for the year ended 31 March 2012 Another strong performance with a 33% increase in dividend Summary of results Years ended 31 March 2012 2011 Change Revenue £374.2m £358.0m +5% Underlying earnings (1) - Operating profit £47.2m £41.9m +13% - Operating profit margin 12.6% 11.7% +0.9 pp - Profit before tax £38.2m £32.9m +16% - Earnings per share 8.3p 7.3p +14% Reported earnings - Operating profit £43.1m £37.9m +14% - Profit before tax £34.1m £28.9m +18% - Earnings per share 7.4p 6.3p +17% Dividend per share 2.0p 1.5p +33% Net debt £61.0m £61.1m -£0.1m Free cash flow (2) £19.6m £21.4m -£1.8m Financial Highlights
* Revenue 5% higher at £374m (up 2% at constant currency)
* Underlying profit before tax up 16% to £38.2m; underlying EPS up 14% to
* Net debt unchanged at £61m after accounting for the Spendvision purchase;
equivalent to 1.1x EBITDA(3) (2011: 1.2x) * Successful completion of UK pension liability management programme to reduce future volatility
* Pre-tax pension deficits up by £31m due to continuing low interest rates
* Full-year dividend up 33% to 2.0p per share with dividend cover of 4.2x
* Client travel transaction activity up 2% and spending up 5% * Revenue per employee up 1% at constant currency * Acquired remaining 42% minority interest in Spendvision, strengthening end-to-end services proposition
* Important new client additions during the year including AIG, Allianz, CGI,
Monitor and Posten Norge
* Strong pipeline of opportunities across multiple client sectors
(1) Before amortisation of acquired intangibles
(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, Taxation, Depreciation and Amortisation
(4) References to client travel activity and client travel spend above and throughout this document are unaudited
David Radcliffe, Chief Executive of Hogg Robinson Group plc, said:
"I am happy to report another strong set of results for HRG despite the continuing challenging economic conditions with underlying profit before tax up 16% to £38.2m. We have continued to provide an excellent, tailored service to clients as we bring to bear the breadth of the Group's services and experience to help them gain better value from their travel expenditure. At the end of the year, we were very pleased to take full operational control of Spendvision, which improves our ability to offer clients integrated end-to-end travel and expense management solutions.
"Since the year end the Group has continued to trade in line with our expectations and we are confident that our proven strategy, resilient business model, robust financial position and strong pipeline of new business opportunities will enable HRG to continue to make good progress in the year ahead. In recognition of our strong performance and confidence we have recommended a 33% increase in the dividend."
Contact Details Hogg Robinson Group +44 (0)1256 312 600
David Radcliffe, Chief Executive Julian Steadman, Group Finance
Angus Prentice, Head of Investor
Relations Tulchan Communications +44 (0)20 7353 4200 Stephen Malthouse David Allchurch Martin Robinson 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.
A presentation for analysts and institutional investors will be held at 0900h BST today at Tulchan Communications, 85 Fleet Street, London EC4Y 1AE. A conference call facility will also be available for analysts and institutional investors unable to attend in person. (Pre-registration for this event is necessary to comply with security procedures at the venue. To register your interest in attending the presentation, or to obtain conference call details, please contact Tulchan Communications on +44 (0)20 7353 4200.) Copies of the presentation with audio commentary from HRG's presentation team will be available at www.hrgworldwide.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.
This has been another year of good performance by the Group, with revenues increasing and profits showing material growth over last year's results. In its turn this enables the funding of another significant increase in the dividend, in line with our progressive dividend policy. We and our clients operated in the last year in a world of divergent regional economic performance. The European economy benefitted from growth in Germany but otherwise did poorly in a year that was dominated by the eurozone crisis and political indecision over the best way to resolve it. Within Europe the UK economy was broadly unchanged for the year as a whole but questions remain about the fragility of the economy. North American economies grew in 2011 but not quite as well as in 2010 while certain countries in South America and much of Asia delivered very good growth in GDP. With these different challenges and opportunities as the backdrop, HRG has once again produced good results and continues to anticipate a positive and resilient future. Our strategy is to provide a range of services to our clients in the corporate travel and related expense area. We do this through a mixture of internet and direct service offerings allowing clients to choose from a range of service levels with consequent pricing options. We are expanding accessibility and range, and have recently increased ownership of our subsidiary, Spendvision, to one hundred per cent. This will enable us to introduce Spendvision's capabilities in online expense management to the corporate travel market, whilst also continuing to develop its capabilities in the existing markets that it serves. Like all businesses we face risks in delivering our strategy including higher oil prices and their impact on travel costs. We have to be at the forefront of technological change as the internet and mobile technology constantly increase the ways to interact with clients. Natural disasters can impact our business, interestingly, positively as well as negatively and finally, travel costs are affected by Government increasing fuel duty and taxation of air travel. Notwithstanding these risks, we see a good and expanding future for the business in the long term. Chief Executive David Radcliffe reports in more detail on performance in the year and the outlook. I would just like to draw shareholders' attention to the increase in underlying earnings per share of 14%. Your Board remains mindful of its commitment to maintain a progressive dividend policy while being cognisant of the capital needs of the business and its cash flow. Nevertheless we think it appropriate to reward shareholders with an increase in the total dividend of 33%, ahead of last year's 25% increase. Borrowings have been held flat this year with the £10.4m cash outflow in connection with the Spendvision purchase being fully funded by the cash flow generated from operations. Year-end net debt again reflects management action to hold it below the average borrowing level for the year but we no longer see the need for this active working capital programme to continue in the future. After allowing for its cessation, we expect the business to again generate positive free cash flow in the coming year. The pension deficit remains a substantial amount for a company of our size. The UK pension scheme has been closed to new members since 2003 and during the year we have taken action to reduce the volatility of the deficit by offering enhanced transfer values to members who withdraw from the scheme. Nevertheless, for so long as interest rates remain at such low levels, it is difficult to see the net pension liabilities reducing significantly. Your Board has complied with the requirements of the UK Corporate Governance Code and, as envisaged last year, we undertook a review of Board effectiveness by external consultants in the last year. The review concluded that our procedures are appropriate but, as always, there are some things we can do better. We have established a programme to follow up these points and will do so through the coming year. We have benefitted from the additional input of the two directors who were appointed last year and we were recently pleased to announce the appointment of our new Group Finance Director, Philip Harrison, who will join the Company on 11th June. We are looking forward to working with him. Philip has been appointed to fill the role that will be left when Julian Steadman retires at the AGM on 25th July after four and a half years' service. In that time, the Company has produced consistently better results and achieved an improved financial position and I would like to thank Julian for his important contribution. We wish him well with his future plans. Finally, I would like to extend my thanks to all those who have contributed to the Company's success this year. The growth has continued and that is due to the efforts of the executive and staff colleagues who have always put the client first, and of course to my colleagues on the Board.
Chief Executive's Statement
I am pleased to report another year of good financial and operational performance. We made excellent progress, continuing the positive momentum that we achieved in the last financial year and since the onset of the financial crisis in late 2008. During the first six months, we delivered very good growth despite the continuing macroeconomic uncertainty. As expected, the second half was essentially flat when measured against more demanding year-on-year comparatives following our strong performance in the second half of last year. For the year ended 31 March 2012, client travel activity increased by 2% and travel spend by 5%. Our own revenue rose by 5% and underlying operating profit by 13%. Given the obvious macroeconomic uncertainty, it is not surprising that our clients continue to show a cautious approach to their travel. Most recognise the need to travel as they pursue their growth objectives. However, a majority had two common objectives this year: to gain tighter control of their travel activity and to maximise the value of their travel-related expenditure. The result was a growing trend towards consolidation of service and the delivery of incremental cost savings. As we have noted before, our proprietary technology is playing an increasingly important role by providing accurate and relevant data to both our clients and our own business managers as they help our clients make decisions. Technology also helps provide efficient and cost-effective tools applicable to other areas of the travel and expense management process. Our strategy is centred on delivering value through excellent service that is tailored to the specific needs of each client. As the breadth of the Group's services has widened in recent years, to include travel, expense and data management underpinned by proprietary technology, our clients have remained at the centre of our attention. This approach supports our reputation as one of the world's leading international corporate services companies helping us sustain a business which delivers value to all stakeholders in the toughest
of trading climates. Financial results Revenue of £374m was up 5% as reported, or up 2% at constant exchange rates. Underlying operating profit, which is before the amortisation of acquired intangibles, was up by 13% to £47.2m, and represented a margin improvement from 11.7% to 12.6%. Underlying profit before tax was up by 16% to £38.2m, and underlying EPS increased by 14% from 7.3p to 8.3p. Once again, this performance underscores the fact that our model does not rely on large revenue growth to enable margin progression.
After including the amortisation of acquired intangibles, reported operating profit was up by 14%, profit before tax was up by 18% and EPS increased by 17%.
Reported revenue per employee increased by 2.7% from £67.5k to £69.3k. At constant exchange rates this was an increase of 0.6%.
At the end of the year, we purchased the remaining 42% of Spendvision for £ 13.4m, which valued 100% of Spendvision at £32.0m. The consideration was funded by £8.4m of cash and the issue of £5.0m of new HRG shares. There was also a deferred consideration payment of £2.0m in cash. Spendvision is a leading innovator in the development and support of transaction management solutions, including expenses management and payable automation. Full ownership brings a number of benefits to the Group. The acquisition is expected to be earnings neutral in the year ending 31 March 2013 and marginally earnings enhancing in the year ending 31 March 2014, excluding the benefit of any cost or revenue synergies. Cash flow generation remained strong. Year-end net debt was held flat at £61m, after paying cash consideration of £10.4m for the acquisition of Spendvision and without any change to our active working capital programme. Year-end net debt represented 1.1x EBITDA (2011: 1.2x). Reducing net debt has been a key focus of the Group over the last four years and our consistently strong free cash flow, coupled with active working capital management, means that the latest net debt figure is now almost half of the £110m in 2008.
On an accounting basis, the Group-wide pension deficits amounted to £146m before tax, or £113m after tax (2011: £89m), reflecting the impact of continuing low interest rates on the net present value of liabilities. As already announced, the April 2011 triennial valuation of the principal UK scheme was agreed with only a small increase in current cash contributions. Since then, we have sought to reduce future volatility by offering enhanced terms to deferred members who transfer their accrued benefits to alternative pension providers. This offer has reduced the March 2012 assets and liabilities by £33m. The cost of implementing the offer amounted to £1.4m and is included in operating expenses for the period.
We operate a progressive dividend policy that remains unchanged. In recognition of the continued strong performance and improved financial position, the Board is recommending a final dividend of 1.4p per share resulting in a full-year dividend of 2.0p per share. This represents an increase of 33% on the prior year and is ahead of the minimum figure of 1.8p per share that we indicated in our half-year results statement last November. Our dividend is covered 4.2x (2011: 4.9x) by underlying EPS. The final dividend will be paid on 30 July 2012 to shareholders on the register at the close of business on 29 June 2012.
Earlier this month we announced that Philip Harrison would be joining us on 11 June as our new Group Finance Director, taking over from Julian Steadman when he retires at our AGM in July. We look forward to welcoming Philip to HRG. On behalf of the Board, the executive management team and all the staff at HRG, I would like to place on record our sincere thanks to Julian for the positive contribution he made to the Group during his time with us, and to wish him
the very best for the future. Current trading and outlook
Given the difficult macroeconomic outlook, we expect trading conditions to remain challenging during the current financial year. However, since the year end, the Group has continued to trade in line with our expectations and we are confident that our proven strategy and business model, our robust financial position and strong pipeline of new business opportunities will enable HRG to continue to make good progress in the year ahead. David Radcliffe Chief Executive Operational Review Market overview The global economy remains uncertain. Figures published by the International Monetary Fund (IMF) reveal 3.9% growth in world output in calendar 2011, compared to 5.3% in the prior year, with estimates of 3.5% and 4.1% growth in 2012 and 2013 respectively. Regional variations exist with growth in the mature economies projected at roughly 1% in 2012 while output in developing economies is forecast to rise by about 6%. As has been predicted by past industry statistics, corporate travel has continued to grow, building on the recovery that began towards the end of calendar year 2009. According to the World Travel & Tourism Council (WTTC), business travel expenditure increased by 3.3% at constant currency in calendar 2011, following the 2.6% in the prior year, and it forecasts growth of 2.5% in 2012. Airline passenger numbers, as reported by the International Air Transport Association (IATA), also continue to grow. Overall, passenger numbers, including leisure traffic, grew by 5.9% in calendar 2011, following the 7.3% increase in the prior year, and is forecast to grow by 4.2% in 2012. The number of premium class passengers grew by 5.5% in 2011 and economy class passengers increased by 5.1%. Premium traffic, which is often seen as a barometer of business confidence, is now about 10% below its pre-recession peak while the number of passengers flying on economy class seats is approximately 7% above. We believe these numbers also reflect the ongoing trend for business passengers to travel in economy, particularly on short-haul journeys. For hotels, revenue per available room (RevPAR) increased by approximately 8% in calendar year 2011, following 9% in the prior year, according to the latest data from STR Global. On a regional basis, Europe, the Americas and Asia Pacific showed growth rates of 13%, 8% and 11% respectively, while RevPAR for hotels in the Middle East and Africa fell by 1%. The outlook for global lodging appears cautiously positive. As examples, both Marriott and Starwood have indicated that they expect constant currency RevPAR growth for 2012 to be similar to 2011. While HRG's fee-based business model does not correlate with any one particular set of data, the IMF, WTTC, IATA and STR Global figures all point to a cautiously positive trend and this is consistent with our view on the outlook for HRG. Client activity
During the financial year, our client travel spend rose by 5% or 2% at constant currency, while travel booking activity rose by 2%.
Following the sharp rises in travel booking activity and spend, which were features of our clients' activity last year as business confidence recovered in the aftermath of the global recession, two specific trends were common to many of our clients' activity this year:
* Consolidation of travel management services through fewer locations
* Determination by clients to seek incremental cost savings wherever possible
We have seen further evidence of a growing trend towards consolidation of travel management through fewer locations, often as part of a general aim to move towards a more centralised model for outsourced services. We anticipated this move some years ago and have been steadily developing our multi-country service model based on fewer locations. The drive by clients to seek further, incremental cost savings is a natural consequence of the ongoing macroeconomic uncertainties and their effect on business generally. Clients are generally more cautious compared to last year and while they recognise the need to continue to travel, they are keen to explore all opportunities to gain better value from their travel expenditure. As we have seen in the past, during periods of uncertainty and austerity, our clients have naturally drawn on our expertise, experience and bespoke advice to help them optimise their travel expenditure and costs. In addition to looking for savings from the travel itself, our clients are increasingly listening to our ideas on how savings can be made by changing or implementing different systems around the process of booking travel. Adoption of online self-booking for simpler travel itineraries continues to grow, not only in the traditional high adoption markets in North America, Australia and certain European countries; companies are now looking at deployment on regional and global bases. In certain countries, self-booking accounts for more than 50% of all travel transactions. Our move to full ownership of Spendvision plays to the growing demand by our clients for an integrated 'end-to-end' travel and expense management solution. We already have clients who benefit from this approach and look forward to developing this opportunity in the future. Costs associated with hotel expenditure and business meetings are other areas where we are helping our clients gain better value and reduce costs. These costs have often been overlooked or misunderstood by clients in the past and as a result of improved data we are now able to offer more disciplined advice in these areas. Programme savings and compliance policy advice are amongst many other areas where HRG is now providing additional services to its clients related directly to cost savings. The supply and analysis of data is at the heart of much of HRG's travel management advice and we have seen an increase in demand from clients for relevant data and analysis to aid decision-making across all areas of travel management, including risk, travel cost and supplier performance. A key product of the ongoing development of our proprietary technology, HRG's superior data and analysis is offering new revenue opportunities to the Group. Our focus in all aspects of our business remains firmly on the delivery of the highest quality of service to each of our clients around the globe. Inevitably, we lose clients from time to time, but we continue to attract new clients and expand our relationships with existing clients. Once again, our value proposition has been rewarded by a consistently-high client retention rate. We were pleased to welcome several new clients during the year including Addax Petroleum, AIG, Allianz, CGI, Monitor, Posten Norge, SNC-Lavalin and States of Jersey. We also secured expanded contracts, in terms of both service and geography, with existing clients such as ABB, BG Group, BMW, Buhler, Capsugel, Department of Veteran Affairs, DHL, Huawei, Mars, Polarcus, Sweco, Sungard, Tesco, UK Central Government and Volkswagen. Notable amongst clients renewing their contracts with HRG were ABB, BG Group, BMW, DuPont, Ergon Energy, Foreign & Commonwealth Office, Interpublic Group, Ministry of Defence, News Corporation, Porsche, Smiths Group, TeliaSonera and Wells Fargo. Since the year end, Unilever has indicated its intention to award its travel contract to HRG. As a new client, Unilever will use HRG services in over 70 countries around the globe. Once again, these successes are evidence of the huge diversity of HRG's client base, in terms of both industry and geography, which is one of the Group's key strengths. Our new business pipeline remains very healthy. We are pleased to note that several of our larger clients and prospects are showing a desire to consolidate service provision as well as by geography. The breadth of HRG's service offering, which includes travel, expense and data management, provides natural benefits to those seeking a 'one-stop shop'. Corporate Travel Management Europe Years ended 31 March 2012 2011 Change Revenue £250.7m £244.6m +2.5% Operating profit £29.0m £27.8m +4.3%
Underlying operating profit (1) £32.1m £30.8m +4.2%
Underlying margin (1) 12.8% 12.6% +0.2 pp
(1) Before amortisation of acquired intangibles
* Resilient performance in challenging economic environment * Strong performances in Germany and Switzerland
* Continuing to help clients consolidate multi-country travel operations into
single-point service hubs
At constant currency, revenue was unchanged for the year, with client spending and travel activity also broadly unchanged. Underlying operating profit rose by £1.3m, including a £1.0m benefit from currency movements.
HRG's European business produced a steady result, building on last year's performance despite the heightened macroeconomic uncertainties which resulted in many of our clients taking a more cautious approach to travel.
The trend for clients to consolidate multi-country operations into single-point service hubs also continues as clients increasingly seek value, policy compliance, control and robust security monitoring. This trend has now become a regular feature in all major new business proposals. HRG's investment in wide area network (WAN) and telephony platforms plays well to this service configuration as we can re-route call volume and optimise resources based on demand. We continue to rationalise our service network and cost base in Europe where appropriate, as we increasingly focus our resources on fewer service points or strategic hubs. Client adoption of online self-booking continued to grow and now accounts for 27% of all bookings made in the region, up from 25% last year. During the year, we continued to improve the efficiencies of our operations across the region. The branch network consolidation and telephony call-flow switching have allowed more travel consultants to work from home and improved clients' online self-booking experience. Less HRG intervention is one of the cost-saving initiatives that have helped us to stay price competitive and maintain margins. Our ongoing focus in the UK has been to deliver excellent service and value to our clients. We have continued to improve our cost base during the year and further efficiencies continue to be evaluated. Amongst new business wins were AIG, BP, Allianz and the UK Central Government. Client activity and travel spend increased in Germany during the year. The first full year of trading with Volkswagen added to the business generated by existing clients, as did Novartis which started to trade with us during the year. HRG Germany played a significant role in helping us win geographic extensions for a number of large German clients, including Volkswagen, BMW and DHL, in the period. HRG's sports-related business in Germany benefited from services provided in connection with the FIFA Women's World Cup football competition held in June and July 2011.
Our Swiss business demonstrated its traditional strength, helped by the first full year of trading with Novartis.
North America Years ended 31 March 2012 2011 Change Revenue £78.0m £77.5m +0.6% Operating profit £11.1m £9.2m +20.7%
Underlying operating profit (1) £11.8m £9.9m +19.2%
Underlying margin (1) 15.1% 12.8% +2.3 pp
(1) Before amortisation of acquired intangibles
* Strong profit growth driven by increased client activity in a competitive
market * Providing more product and services to existing clients, particularly meetings management and online self-booking * Strong pipeline of opportunities
At constant currency, revenue was up 1.9%, with client spending increasing by 3% and travel activity by 4%. Underlying operating profit grew by £1.9m, with no impact from currency movements. Margins improved as a result of tight cost control, including further rationalisation of our property portfolio. Our business in North America delivered a solid performance during the year. Top-line growth was bolstered by increased client activity and the provision of additional travel management product and services to existing clients. Meetings Management is one specialist service that proved particularly attractive to those clients with limited internal resource. We saw further growth in client adoption of our online self-booking solutions, using our own or third-party booking tools. Online self-booking is proving attractive to clients looking to gain better value in their travel spend and is well suited to clients in North America where point-to-point domestic travel journeys are commonplace.
The North American market remains very competitive. Our steady investment in recent years in efficient operating systems, underpinned by our proprietary technology, enables us to handle large volumes of lower-price transactions which are commonplace for domestic travel in this region.
Our loyalty business in Canada, which manages the redemption of credit card reward points programmes, continued to perform well. We restructured this business during the year to take account of a planned move into an online environment in cooperation with another supplier. This online agreement will attract lower fees but also requires a significantly lower cost base to operate. During the year, we also entered the loyalty market in the USA with new clients Lufthansa Miles & More and Delta SkyMiles and the pipeline remains strong. Asia Pacific Years ended 31 March 2012 2011 Change Revenue £30.3m £23.4m +29.5% Operating profit £0.9m £0.4m +125.0%
Underlying operating profit (1) £0.9m £0.4m +125.0%
Underlying margin (1) 3.0% 1.7% +1.3 pp
(1) Before amortisation of acquired intangibles
* Strong performance with revenue growth of 21.0% at constant currency * Australia performed well aided by strong economy and demand in natural resources * Margin improvement reflecting continued improvements in operational efficiency At constant currency, revenue was up by 21.0%, with client spending increasing by 19% and travel activity by 24%. There was no currency impact on the £0.5m increase in underlying operating profit. Our business in Australia performed well during the year, aided by the ongoing strength of the economy and the surge in demand for the country's natural resources. We won several new clients and expanded the scope of our services to many existing clients. Our margin improvement reflects continued improvements in our operational efficiency. Online self-booking of travel increased further during the year and now accounts for more than 55% of all bookings (2011: approximately 50%). Although there was some softening of the corporate travel market during the third quarter of our financial year, it rebounded strongly during the final quarter. Our business in Singapore remained stable during the past year reflecting the relative stability of the country's economy in the face of the uncertainties that continue to dominate other regions of the world. As we have noted before, Singapore is a natural hub for client travel consolidation. The trend towards increasing consolidation of operations is now being explored by clients in some smaller markets such as Malaysia, Indonesia, Philippines and Thailand who will be able to take advantage of our regional service centre along with a new regional after-hours service launched this year.
Our joint ventures in mainland China and Hong Kong also performed well, benefiting from the background of good economic growth in the region. As associates, their results are not included in the table above.
Spendvision Years ended 31 March 2012 2011 Change Revenue £15.2m £12.5m +21.6% Operating profit £2.1m £0.5m +320.0%
Underlying operating profit (1) £2.4m £0.8m +200.0%
Underlying margin (1) 15.8% 6.4% +9.4 pp
(1) Before amortisation of acquired intangibles
With a refreshed management team in place, revenue was up 20.0% at constant currency, with good growth in direct business and also with clients in the banking sector. Underlying operating profit grew by £1.6m, including a £0.1m benefit from currency movements. The sharp rise in underlying margin is encouraging and has come as a result of much sharper focus within the business. Investment in additional development capacity has also allowed us to provide enhancements in functionality to customers.
Spendvision is a leading innovator in the development and support of transaction management solutions, including end-to-end expense management and payables automation. The online platform makes it easy for companies to capture, pay for, manage and understand all their corporate transactions, giving complete control over spend and increased cost efficiency. It also automates the processing of expense claims for employees.
The global roll out of Visa IntelliLink Spend Management solution, a white-label version of the Spendvision platform provided through an alliance with Visa, has continued to see strong growth with over 70 financial institutions now offering the solution.
Spendvision continues to maintain and develop strong relationships with new and existing partners, delivering additional services and advanced functionality such as its payables module. As part of an end-to-end travel management and expenses solution, we see good opportunities for contactless payment and eMoney, together with our payables financing functionality. We have recently signed a significant new client in the banking sector and have a strong pipeline of additional white-label opportunities.
Since 30 March 2012, Spendvision has been wholly-owned by HRG and this will allow us to further capitalise on the strengths and capabilities of both companies. In addition to building on their current strengths in existing markets, there are also exciting opportunities to work together for the offering and integration of our travel and expense management solutions for our corporate clients.
Technology The influence and importance of technology in business continues to grow apace. In the delivery of travel and related expense solutions, technology remains a critical factor due to ever-increasing complexity of data and decision-making as well as the need for accuracy and swift reporting. Whilst retaining its capability of being able to work with whichever technological solutions our clients prefer, HRG has continued with its strategy of developing products and solutions that are targeted at the corporate travel and related expense sector. Our systems platform architecture enables us to deliver a wide range of proprietary applications as well as to integrate with third-party systems where necessary to meet specific client needs. Travel distribution, booking and reporting lie at the core of our technology development. Whether accessing the Global Distribution Systems (GDS) for content or going direct to suppliers, our knowledge and platform architecture helps determine the best way of sourcing and aggregating appropriate content for booking and reporting. From integrating the latest GDS content interfaces to assessing if 'direct connect' with a provider is viable and in the best interest of our clients, our technology platform offers flexibility and positions HRG at the forefront of the direct connect debate. HRG's systems provide access to travel itineraries, alternative pricing, policy compliance, online self-booking tools, security tracking and reporting. They also allow our staff to access information from multiple, concurrent sources, enabling us to provide efficient, rapid and cost-effective service to our clients at all times.
During the year, we released upgrades across our product range with user interface updates and increased content through development of the Travelport Universal Application Programming Interface as a complement to its core GDS content.
With the ongoing and rapid adoption of smartphone mobile devices in business life, our development of mobile technology continued during the period. Access to HRG i-SuiteTM, our online portal offering clients access to both HRG and third-party products, and HRG OnlineTM, our in-house developed online booking tool, is available via BlackBerry, and similar applications are being developed for iPhone and Android mobile devices. The discussions surrounding applications and website mobile optimisation continue and our flexible platform architecture means we can be actively engaged in both. During the last quarter of our financial year, we presented to the market our new data reporting service HRG InsightTM. This has been a significant development focus through the year and pilots of the new product are now in use. Travel data has historically been built around pre-trip, post-trip and security. We believe that data should be dynamic and flexible. HRG InsightTM is therefore a dynamic, flexible and open platform which brings clients' data to life by telling the complete story of each transaction, thereby empowering travel managers and travellers with the information they need. Technology allows companies to manage their travel programmes efficiently while enhancing the traveller experience which is why it remains a key element of our strategy. We believe HRG's technology is best in class and leading the way amongst the global travel management companies.
Additional Financial Disclosure
Reported revenue increased by 4.5% to £374.2m, comprised of an increase of 2.4% at constant exchange rates and an increase of 2.1% from favourable currency translation.
Revenue per employee
Reported revenue per employee increased by 2.7% from £67.5k to £69.3k. At constant exchange rates, this was an increase of 0.6%.
Reported operating expenses increased by 3.4% to £331.1m.
Underlying operating expenses, which are before amortisation of acquired intangibles, increased by 3.4% to £327.0m, or by 1.4% at constant exchange rates. This 1.4% increase is comprised of 4.8% for staff costs and a reduction of 5.2% for other expenses.
The increase of 4.8% in staff costs reflects an increase of 1.7% in staff numbers and higher average compensation, including bonuses but excluding share-based incentives.
The reduction of 5.2% for other expenses is due to the continuing focus on cost management.
Underlying operating profit Underlying operating profit, which is before amortisation of acquired intangibles, increased by 12.6% from £41.9m to £47.2m, and includes a benefit of £1.1m from favourable currency movements. The underlying operating profit margin, which has not been affected by currency movements, increased from 11.7% to 12.6%. Exceptional items
There were no exceptional items in the current or prior period income statements.
Net finance costs
Net finance costs increased by £0.9m to £9.9m, reflecting the full-year impact of refinancing the Group's credit facilities in November 2010. Net external interest costs increased by £2.0m as a result. The IAS 19 pension charge, which is based on the 31 March position, decreased by £0.9m for the year, but is expected to increase by £1.4m in the year to 31 March 2013.
The tax charge for the year represents an overall effective tax rate (ETR) of 29.0% of the reported profit before tax (2011: 31.5%). The current year ETR includes a £0.3m charge relating to the impact on deferred tax assets of a reduction in the UK corporation tax rate from 26% to 24%. An additional charge of £2.8m is reflected in the Consolidated Statement of Comprehensive Income in respect of deferred tax assets on pension liabilities. We anticipate an ETR of no more than 30% in future years.
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 £214.4m (2011: £216.4m) compared with £169.7m at the year end (2011: £162.5m). The return for the year was 22.5% (2011: 19.4%).
Free cash flow, 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 £19.6m (2011: £21.4m).
Cash outflow in respect of working capital was £11.6m (2011: £1.8m), primarily due to a reduction in trade creditors. The cash outflow related to interest and refinancing costs was £5.6m (2011: £6.8m). Tax paid in cash was £6.7m (2011: £ 9.3m) and capital expenditure, which is primarily internal software development and office equipment, was £9.4m (2011: £8.7m). Cash costs for pension deficit reduction were £6.0m (2011: £6.1m).
In addition to free cash flow, the other major cash flow items are £11.7m related to acquisitions and disposals (2011: £0.8m), mainly comprising the Spendvision acquisition, share purchases of £2.5m by the Employee Benefits Trust (2011: £nil) and £4.7m of dividends paid to shareholders during the year (2011: £3.9m).
Funding and net debt The principal banking facility is a £190m multi-currency revolving credit facility (RCF) that is committed until November 2014. The RCF is used for loans, letters of credit and guarantees, with interest based on LIBOR/EURIBOR plus a margin and costs. During the year, the Group took advantage of the low interest rate environment to fix 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 uncommitted facilities amounting to around £18m at the year end. The principal covenants are measured semi-annually, at the end of March and the end of September, and 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 at year end reduced by £0.1m to £61.0m and was equivalent to 1.1 times EBITDA (2011: 1.2x). This translates into gearing of 35% (2011: 36%), or 99% (2011: 74%) including the pension deficits and related deferred tax assets. The Group has used an active programme to reduce working capital requirements at the end of each half-year reporting period, but we no longer see the need for this working capital programme to continue in the future. This programme reduced net debt by approximately £31m in both March 2012 and 2011. Average net debt, as measured on a weekly basis, reduced by £19m during the year.
Net external interest costs of £6.6m were covered 8.8 times by EBITDA (2011: 11.2x).
The Group-wide pension deficits under IAS 19 have increased by £31.1m to £ 145.8m before tax.
The UK scheme deficit increased by £30.0m to £134.1m. The scheme assets reduced by £21.0m and the scheme liabilities increased by £9.0m, with a lower discount rate adding £41.2m, a lower inflation rate saving £10.0m, revised mortality assumptions saving £3.6m and a difference between actual and expected return on assets of £5.0m. For several years, the UK defined benefit scheme has been closed to new entrants and has capped increases in pensionable salary. Our latest triennial valuation, which was effective as at April 2011, was agreed with the Trustees during the year. During the year, deferred members of the UK scheme were offered the opportunity to transfer their accrued benefits out of the UK scheme to alternative pension providers on enhanced terms. The programme reduced the March 2012 assets and liabilities by approximately £33m. The cost of implementing the programme amounted to £1.4m and is included in other operating expenses for the period.
The overseas schemes are primarily in Germany and Switzerland, where the year-end deficit increased by £1.1m to £11.7m.
At the year end, there was a deferred tax asset of £32.2m (2011: £27.0m) relating to the UK deficit and an asset of £0.5m (2011: £0.9m liability) relating to the overseas schemes. The change in UK deferred tax includes the 2% reduction in the headline rate of UK corporation tax.
The closing mid-market price at the year end was 70.25p (2011: 58p). During the year, the price ranged from 46.6p to 70.3p per share.
Summary income statement Years ended 31 March 2012 2011 £m £m Revenue 374.2 358.0 EBITDA 57.9 51.6 Depreciation and amortisation (1) (10.7) (9.7) Underlying operating profit 47.2 41.9 Amortisation of acquired intangibles (4.1)
Share of associates and joint ventures 0.9
- Net finance costs (9.9) (9.0) Profit before tax 34.1 28.9 Taxation (9.9) (9.1) Profit for the year 24.2 19.8 Summary balance sheet As at 31 March 2012 2011 £m £m Goodwill and other intangible assets 244.6
Property, plant, equipment and investments 14.9 15.3 Working capital (86.9) (99.8) Current tax liabilities (net) (6.4) (4.7) Deferred tax assets (net) 43.9 38.9 Net debt (61.0) (61.1) Pension liabilities (pre-tax) (145.8) (114.7) Provisions and other items (2.9) (2.8) Net assets 0.4 21.0 Summary cash flow statement Years ended 31 March 2012 2011 £m £m EBITDA 57.9 51.6 Cash flow from exceptional items - (0.9) Working capital movements (11.6) (1.8) Interest paid (5.6) (3.2) Refinancing costs - (3.6) Tax paid (6.7) (9.3) Capital expenditure (9.4) (8.7) Pension funding in excess of EBITDA charge (6.0) (6.1) Other movements 1.0 3.4 Free cash inflow 19.6 21.4 Acquisitions and disposals (11.7) (0.8)
Employee Benefits Trust share purchases (2.5) - Dividends paid to external shareholders (4.7) (3.9) Currency translation (0.6) (0.3) Decrease in net debt 0.1 16.4
1. Excluding amortisation of acquired intangibles
Hogg Robinson Group plc
Consolidated Income Statement
For the year ended 31 March 2012
Years ended 31 March Notes 2012 2011 £m £m Revenue 1 374.2 358.0 Operating expenses 2 (331.1) (320.1) Operating profit 43.1 37.9 Analysed as: Underlying operating profit 47.2 41.9 Amortisation of acquired intangibles 8 (4.1) (4.0) Operating profit 43.1 37.9
Share of results of associates and joint 0.9
- ventures Finance income 4 0.3 0.2 Finance costs 4 (10.2) (9.2) Profit before tax 34.1 28.9 Income tax expense 5 (9.9) (9.1) Profit for the financial year 24.2 19.8 Profit attributable to: Equity shareholders of the Company 22.3 19.1 Non-controlling interests 13 1.9 0.7 24.2 19.8 Years ended 31 March 2012 2011 Earnings per share pence pence Basic 6 7.4 6.3 Diluted 6 7.0 6.1 Hogg Robinson Group plc
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2012
Years ended 31 March Notes 2012 2011 £m £m Profit for the financial year 24.2 19.8 Other comprehensive income Currency translation differences (2.9)
Amounts credited to hedging reserve 0.5
Actuarial (loss) / gain on pension schemes 11 (35.3)
Deferred tax movement on pension liability 9.1
Deferred tax movement on pension liability
attributable to impact of UK rate change (2.8) (2.1)
Deferred tax movement on cumulative
share-based incentives cost 0.6 0.3
Other comprehensive (loss) / income for the (30.8)
2.8 year, net of tax
Total comprehensive (loss) / income for the (6.6)
Total comprehensive (loss) / income
Equity shareholders of the Company (8.4)
21.8 Non-controlling interests 1.8 0.8 (6.6) 22.6 Hogg Robinson Group plc Consolidated Balance Sheet As at 31 March 2012 As at 31 March Notes 2012 2011 £m £m Non current assets Goodwill and other intangible 8 244.6 249.9 assets Property, plant and equipment 9 11.6 12.9 Investments accounted for using 3.3 2.4 the equity method Trade and other receivables 0.1 0.1 Deferred tax assets 45.0 40.9 304.6 306.2 Current assets Trade and other receivables 102.4 114.7 Financial assets - derivative 0.5 - financial instruments Current tax assets - 0.7 Cash and cash equivalent assets 68.5 70.5 171.4 185.9 Total assets 1 476.0 492.1 Non current liabilities Financial liabilities - (126.8) (128.0) borrowings Deferred tax liabilities (1.1) (2.0)
Retirement benefit obligations 11 (145.8) (114.7)
Provisions (4.2) (4.2) (277.9) (248.9) Current liabilities Financial liabilities - (0.3) (0.3) borrowings Financial liabilities - - (0.3) derivative financial instruments Current tax liabilities (6.4) (5.4) Trade and other payables (189.4) (214.6) Provisions (1.6) (1.6) (197.7) (222.2) Total liabilities (475.6) (471.1) Net assets 0.4 21.0 Capital and reserves Share capital 3.2 3.1 Share premium 177.6 172.2 Other reserves 12 10.1 14.0 Retained earnings 12 (192.0) (171.9) Attributable to owners of Hogg (1.1) 17.4 Robinson Group plc Attributable to non-controlling 13 1.5 3.6 interests Total equity 0.4 21.0 Hogg Robinson Group plc
Consolidated Statement of Changes in Equity
As at 31 March 2012 Attributable to equity holders of the Company Share Share Other Retained Non-controlling Total capital premium reserves earnings Total interests Equity £m £m £m £m £m £m £m Balance at 1 3.1 172.2 13.4 (191.4) (2.7) 3.4 0.7 April 2010 Retained profit - - - 19.1 19.1 0.7 19.8 for the financial year Other comprehensive income: Actuarial gain - - - 8.5 8.5 - 8.5 on pension schemes Deferred tax - - - (2.4) (2.4) - (2.4) movement on pension liability Deferred tax movement on pension liability attributable to - - - (2.1) (2.1) - (2.1) impact of UK rate change Deferred tax movement on cumulative share-based - - - 0.3 0.3 - 0.3 incentives cost Currency - - (1.6) - (1.6) 0.1 (1.5) translation differences Total - - (1.6) 23.4 21.8 0.8 22.6 comprehensive income Transactions with owners: Dividends - - - (3.9) (3.9) (0.6) (4.5) Shares - - - - - - - purchased by Employee Benefits Trust Share-based - - 2.2 - 2.2 - 2.2 incentives Total - - 2.2 (3.9) (1.7) (0.6) (2.3) transactions with owners Balance at 31 3.1 172.2 14.0 (171.9) 17.4 3.6 21.0 March 2011 Retained profit - - - 22.3 22.3 1.9 24.2 for the financial year Other comprehensive income: Actuarial loss - - - (35.3) (35.3) - (35.3) on pension schemes Deferred tax - - - 9.1 9.1 - 9.1 movement on pension liability Deferred tax movement on pension liability attributable to - - - (2.8) (2.8) - (2.8) impact of UK rate change Deferred tax movement on cumulative share-based - - - 0.6 0.6 - 0.6 incentives cost Transfer from - - (0.9) 0.9 - - -exchange reserve to retained earnings Currency - - (2.8) - (2.8) (0.1) (2.9) translation differences Amounts - - 0.5 - 0.5 - 0.5 credited to hedging reserve Total - - (3.2) (5.2) (8.4) 1.8 (6.6) comprehensive income Transactions with owners: Dividends - - - (4.7) (4.7) (0.9) (5.6) Shares - - - (2.5) (2.5) - (2.5) purchased by Employee Benefits Trust Share-based - - 2.4 - 2.4 - 2.4 incentives - charge for period Share-based - - (0.1) - (0.1) - (0.1) incentives - exercise of CSOP options New shares - 0.1 - - 0.1 - 0.1 issued to satisfy share-based incentives New shares - 0.4 - - 0.4 - 0.4 issued to satisfy sharesave scheme Transfer from - - (3.0) 3.0 - - - share based incentive reserve to retained earnings Acquisition of 0.1 4.9 - (10.4) (5.4) (3.0) (8.4) non-controlling interests Transaction - - - (0.3) (0.3) - (0.3) costs Total 0.1 5.4 (0.7) (14.9) (10.1) (3.9) (14.0) transactions with owners Balance at 31 3.2 177.6 10.1 (192.0) (1.1) 1.5 0.4 March 2012 Hogg Robinson Group plc
Consolidated Cash Flow Statement
For the year ended 31 March 2012
Years ended 31 March Notes 2012 2011 £m £m
Cash flows from operating activities Cash generated from operations 15 43.5
46.9 Interest paid (6.9) (3.6) Tax paid (6.7) (9.3)
Cash flows from operating activities - net 29.9
Cash flows from investing activities Acquisition of subsidiaries, net of cash (2.0) (0.8) acquired
Capital contribution in respect of equity (1.6)
- accounted investments
Disposals of associates, joint ventures and 0.3
- other investments Purchase of property, plant and equipment (4.2)
Purchase and internal development of 8 (5.4) (5.4) intangible assets
Proceeds from sale of property, plant and 0.2
- equipment Interest received 0.3 0.2
Dividends received from associates and joint 1.0
0.2 ventures Cash flows from investing activities - net (11.4) (9.1)
Cash flows from financing activities
Repayment of borrowings (22.7) (176.3) New borrowings 20.5 170.8 Issue costs of new borrowings -
Cash effect of currency swaps (0.1)
0.1 Employee Benefits Trust 12 (2.5) -
Acquisition of non-controlling interest 14 (8.4)
Dividends paid to external shareholders (4.7)
Dividends paid to non-controlling interests (0.9) (0.6) Cash flows from financing activities - net (18.8) (13.5)
Net (decrease) / increase in cash and cash (0.3)
Cash and cash equivalents at beginning of 70.4
58.2 the year Exchange rate effects (1.6) 0.8
Cash and cash equivalents at end of the year 68.5
Cash and cash equivalent assets 68.5
70.5 Overdrafts - (0.1) 68.5 70.4
Additional Financial Information
General information and basis of preparation
The financial information which comprises the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity and the Consolidated Cash Flow Statement and related notes does not constitute the Company's Consolidated Financial Statements for the years ended 31 March 2012 and 2011, but is derived from those financial statements. The auditors have reported on the Group's Consolidated Financial Statements for each of the years ended 31 March 2012 and 31 March 2011. Their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498(2) or (3) of Companies Act 2006 or equivalent preceding legislation. The Consolidated Financial Statements for the year ended 31 March 2011 have been delivered to the Registrar of Companies and the Consolidated Financial Statements for the year ended 31 March 2012 will be filed with the registrar in due course. The Consolidated Financial Statements have been prepared in compliance with International Financial Reporting Standards (IFRS) as adopted by the European Union, International Financial Reporting Interpretations Committee (IFRIC) interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The Consolidated Financial Statements have been prepared under the historical cost convention, as modified by the use of valuations for certain financial instruments, share-based payment incentives and retirement benefits.
Critical accounting policies and forward-looking statements
The preparation of the IFRS financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the year. The Operational Review should be read in conjunction with the audited Consolidated Financial Statements. The discussions contain forward-looking statements that appear in a number of places and include statements regarding HRG's intentions, beliefs or current expectations concerning, among other things, results of operations, revenue, financial condition, liquidity, growth, strategies, new products and the markets in which HRG operates. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties.
Underlying operating profit is calculated as operating profit before amortisation of acquired intangibles and exceptional items
Earnings Before Interest, Taxation, Depreciation and Amortisation (EBITDA) is calculated as operating profit before exceptional items before net finance costs, income taxes, depreciation, amortisation and impairment.
The Directors believe that the presentation of underlying operating profit and EBITDA enhances an investor's understanding of HRG's financial performance. However, underlying operating profit and EBITDA should not be considered in isolation or viewed as substitutes for retained profit, cash flow from operations or other measures of performance as defined by IFRS. Underlying operating profit and EBITDA as used in this announcement is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation and are unaudited line items but are derived from audited financial information. The Directors use underlying operating profit and EBITDA to assess HRG's operating performance and to make decisions about allocating resources among various reporting segments.
1 Segment information
The chief operating decision maker has been identified as the Executive Management Team, which reviews the Group's internal reporting in order to assess performance and allocate resources. The Executive Management Team has determined the operating segments based on these reports.
The Executive Management Team considers the business from the perspective of two core activities, Corporate Travel Management, which is analysed into three distinct geographic segments, and Spendvision. The Group's internal reporting processes do not distinguish between the numerous sources of income that comprise revenue for Corporate Travel Management. The performance of the operating segments is assessed based on a measure of operating profit excluding items of an exceptional nature. Interest income and expenditure and income tax expense are not included in the result for each operating segment that is reviewed by the Executive Management Team. Other information provided, except as noted below, to the Executive Management Team is measured in a manner consistent with that in the financial statements. Total segment assets exclude cash and cash equivalent assets, current tax assets and deferred tax assets which are managed on a central basis. These are included as part of the reconciliation to total Consolidated Balance Sheet assets. Corporate Travel Management North Asia Europe America Pacific Total Spendvision Total £m £m £m £m £m £m Year ended 31 March 2012 Revenue from external 250.7 78.0 30.3 359.0 15.2 374.2 customers Underlying operating 32.1 11.8 0.9 44.8 2.4 47.2 profit Amortisation of acquired (3.1) (0.7) - (3.8) (0.3) (4.1) intangibles Operating profit 29.0 11.1 0.9 41.0 2.1 43.1 Underlying margin 12.8% 15.1% 3.0% 12.5% 15.8% 12.6% Year ended 31 March 2011 Revenue from external 244.6 77.5 23.4 345.5 12.5 358.0 customers Underlying operating 30.8 9.9 0.4 41.1 0.8 41.9 profit Amortisation of acquired (3.0) (0.7) - (3.7) (0.3) (4.0) intangibles Operating profit 27.8 9.2 0.4 37.4 0.5 37.9 Underlying margin 12.6% 12.8% 1.7% 11.9% 6.4% 11.7%
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.
Corporate Travel Management North Asia Europe America Pacific Total Spendvision Total £m £m £m £m £m £m Total segment assets 31 March 2012 251.8 85.6 16.4 353.8 8.7 362.5 31 March 2011 268.2 89.4 15.8 373.4 6.6 380.0
Reported segments' assets are reconciled to total assets as follows:
31 March 31 March 2012 2011 £m £m Total segment assets 362.5 380.0
Cash and cash equivalent assets 68.5 70.5
Current tax assets - 0.7 Deferred tax assets 45.0 40.9 476.0 492.1
Capital expenditure by geographical location:
Corporate Travel Management North Asia Europe America Pacific Total Spendvision Total £m £m £m £m £m £m Capital expenditure 31 March 2012 6.4 1.2 0.7 8.3 2.2 10.5 31 March 2011 6.2 1.6 0.4 8.2 1.0 9.2 2 Operating expenses Years ended 31 March 2012 2011 £m £m Underlying operating expenses Staff costs (note 3) 225.3 210.4 Amortisation of intangible assets other than acquired 5.4 4.4 intangible assets
Depreciation of property, plant and equipment 5.3
Auditors' remuneration for audit services 1.1
Operating lease rentals - buildings 14.4
Operating lease rentals - other assets 1.8
Loss on disposal of property, plant and equipment 0.6
0.5 Property lease impairment 0.6 1.1
Pension liability management programme costs 1.4
Currency translation differences 0.1
0.2 Other expenses 71.0 77.0 327.0 316.1
Amortisation of acquired intangibles: Amortisation of client relationships 3.8
Amortisation of other acquired intangible assets 0.3
0.3 4.1 4.0 Total operating expenses 331.1 320.1 3 Staff costs Years ended 31 March 2012 2011 £m £m Salaries 188.4 175.5 Social security costs 22.0 20.6 Pension costs 10.2 9.9
Redundancy and termination costs 2.3
2.2 Share-based incentives 2.4 2.2 225.3 210.4 Pension costs comprise:
Defined benefit schemes (note 11) 3.2
Defined contribution schemes 7.0
6.2 10.2 9.9 Years ended 31 March 2012 2011 number number Average monthly number of staff employed by the Group 5,398 5,307 including Key Management
4 Finance income and finance costs
Years ended 31 March 2012 2011 £m £m
Finance income - bank interest 0.3
0.2 Interest on bank overdrafts and loans (5.8)
Amortisation of issue costs on bank loans (0.9)
Interest on obligations under finance leases (0.1)
Expected return on pension scheme assets less interest cost on pension scheme liabilities (note 11) (2.4) (3.3) Other finance charges (0.7) (0.5) Interest on derivative financial instruments (0.3) (0.3) Finance costs (10.2) (9.2) Net finance costs (9.9) (9.0) 5 Income tax expense Years ended 31 March 2012 2011 £m £m Current tax:
Tax on profits of the financial year 8.5
Adjustments in respect of previous years (0.1) (1.6) Total current tax 8.4 5.0 Deferred tax:
Origination and reversal of temporary differences 3.1
Adjustments in respect of previous years (1.9) (0.5) Impact of UK rate change 0.3 0.5 Total deferred tax 1.5 4.1 Taxation charge 9.9 9.1
The tax charge is split as follows:
Years ended 31 March 2012 2011 £m £m United Kingdom 2.4 3.7 Overseas 7.5 5.4 Taxation charge 9.9 9.1 Years ended 31 March 2012 2011 £m £m On underlying business 11.2 10.3 Tax on amortisation of acquired intangibles (1.3) (1.2) Exceptional items - - Taxation charge 9.9 9.1 6 Earnings per share Earnings per share attributable to equity holders of the Company were as follows: Years ended 31 March 2012 2011 pence pence Earnings per share Basic 7.4 6.3 Diluted 7.0 6.1 Basic earnings per share (EPS) is calculated by dividing the earnings attributable to equity holders of the Company by the weighted average number of Ordinary shares outstanding during the year, excluding those purchased by the Company's Employee Benefits Trust. For diluted earnings per share, the weighted average number of Ordinary shares in issue is adjusted to assume conversion of all dilutive potential Ordinary shares. The following amounts have been used in the calculation of earnings per share: Years ended 31 March 2012 2011 £m £m
Earnings for the purposes of earnings per share:
Profit for the financial year 24.2 19.8 Less: amount attributable to non-controlling interests (1.9) (0.7) Total 22.3 19.1 Years ended 31 March 2012 2011 number number m m
Weighted average number of Ordinary shares in issue
Issued (for basic EPS) 303.3 301.0 Effect of dilutive potential Ordinary shares - 14.2 12.9 share-based incentives For diluted EPS 317.5 313.9
The weighted average number of issued Ordinary shares is higher in the year ended 31 March 2012 compared to the year ended 31 March 2011 due to the impact of the shares purchased by the Employee Benefits Trust, exercising of options under the Sharesave Scheme and the shares issued on acquisition of Spendvision Holdings Limited.
The Employee Benefits Trust has waived its rights to dividends.
Underlying earnings per share
Underlying earnings per share attributable to equity holders of the Company were as follows: Years ended 31 March 2012 2011 pence pence
Underlying earnings per share
Basic 8.3 7.3 Diluted 7.9 7.0
Underlying earnings per share is calculated on the profit attributable to equity holders of the Company before amortisation of acquired intangibles after charging taxation associated with those profits.
Years ended 31 March 2012 2011 £m £m
Earnings for the purposes of underlying earnings per
share: Profit before tax from continuing operations 34.1
Add: amortisation of acquired intangibles 4.1
4.0 Underlying profit before tax 38.2
Underlying income tax expense (11.2) (10.3) Underlying profit for the financial year 27.0
Less: amounts attributable to non-controlling (1.9) (0.7) interests Total 25.1 21.9 7 Dividends per share The dividends to the Company's shareholders in the year ended 31 March 2012 were: Years ended 31 March 2012 2011 £m £m
Final dividend in respect of year ended 31 March 2011 1.0p per share (31 March 2010 0.8p per share) 2.9
Interim dividend in respect of year ended 31 March
0.6p per share (31 March 2011 0.5p per share) 1.8
Total dividends to the Company's shareholders (note 4.7
3.9 12) The final dividend in respect of year ended 31 March 2011 includes an amount of £0.2m which was repaid by The Employee Benefits Trust in respect of previous dividends waived. A final dividend in respect of the year ended 31 March 2012 of 1.4p per Ordinary share, amounting to a total dividend of £4,359,342, is to be proposed at the Annual General Meeting on 25 July 2012. The Employee Benefits Trust has waived its rights to dividends.
8 Goodwill and other intangible assets
Years ended 31 March 2012 2011 £m £m Goodwill 219.8 221.0 Other intangible assets 24.8 28.9 244.6 249.9 Computer software Externally Internally Client Goodwill acquired generated relationships Total £m £m £m £m £m Cost At 1 April 2010 248.2 16.2 17.9 37.4 319.7 Additions - 0.8 4.6 - 5.4 Exchange differences (0.8) - 0.1 0.7 - At 31 March 2011 247.4 17.0 22.6 38.1 325.1 Additions 2.0 0.8 4.6 - 7.4 Disposals - (0.2) - - (0.2) Exchange differences (3.2) (0.4) 0.1 (0.6) (4.1) At 31 March 2012 246.2 17.2 27.3 37.5 328.2 Accumulated amortisation At 1 April 2010 26.4 11.2 7.0 21.6 66.2 Amortisation charge for the - 1.5 3.2 3.7 8.4 year Exchange differences - 0.1 (0.1) 0.6 0.6 At 31 March 2011 26.4 12.8 10.1 25.9 75.2 Amortisation charge for the - 1.5 4.2 3.8 9.5 year Disposals - (0.2) - - (0.2) Exchange differences - (0.3) (0.1) (0.5) (0.9) At 31 March 2012 26.4 13.8 14.2 29.2 83.6 Carrying amount At 1 April 2010 221.8 5.0 10.9 15.8 253.5 At 31 March 2011 221.0 4.2 12.5 12.2 249.9 At 31 March 2012 219.8 3.4 13.1 8.3 244.6
The amortisation charge for the year of £9.5m (2011: £8.4m) is comprised of £ 4.1m (2011: £4.0m) in respect of intangible assets acquired via business combinations and £5.4m (2011: £4.4m) which relates to amortisation of software purchased and internally generated by existing businesses.
Impairment of goodwill
The recoverable amount used in the assessment of goodwill for all cash generating units comprises the higher of value in use and net realisable value. During the year the Group reviewed its discount rate and long term growth rates and these have been applied in the assessment. The value in use has been calculated by discounting at 10% per annum (2011: 10% per annum) the anticipated pre-tax cash flows. The forecasts are prepared from management information taking into account historical trading performance and anticipated changes in future market conditions. The detailed forecasts cover a period of three years from the balance sheet date; cash flows are projected beyond that period based on market consensus for GDP growth of 2% (2011: 2%). Goodwill consists of the following amounts related to cash generating units of the Group: Years ended 31 March 2012 2011 £m £m Corporate Travel Management Europe 169.7 172.9 North America 43.6 43.6 Asia Pacific 1.0 1.0 214.3 217.5 Spendvision 5.5 3.5 219.8 221.0
The key assumptions used in the impairment testing were as follows:
* Discount rates
* Rates of growth in cash generating units beyond 3 years
The discount rate reflects management's estimate of the post-tax cost of capital employed for the Group's cash generating units listed above. The same rate is applied to all cash generating units, and reflects the Group's funding arrangements where all units have equal access to the Group's treasury functions and borrowing lines to fund their operations. None of the Group's cash generating units demonstrate levels of risks that are significantly different from those experienced by the Group generally, and all have similar funding profiles and therefore the discount rate applied is deemed to be justified.
Rates of growth in cash generating units beyond 3 years
Management have reviewed Corporate Travel industry forecasts and consider that the market consensus for GDP growth of 2% is reasonable for the purposes of
the assessment of goodwill. Goodwill impairment
Management believes that no reasonable change in the key assumptions would cause any of the identified cash generating units to become impaired.
9 Property, plant and equipment
Property Plant and Total equipment £m £m £m Cost At 1 April 2010 10.5 49.8 60.3 Additions for the year 0.8 3.0 3.8 Disposals for the year (0.7) (0.8) (1.5) Exchange differences - 0.3 0.3 At 31 March 2011 10.6 52.3 62.9 Additions for the year 0.4 4.7 5.1 Disposals for the year (0.2) (6.1) (6.3) Exchange differences (0.1) (0.9) (1.0) At 31 March 2012 10.7 50.0 60.7 Accumulated depreciation At 1 April 2010 7.2 38.3 45.5
Depreciation charge for the year 0.8 4.5
5.3 Disposals for the year (0.3) (0.7) (1.0) Exchange differences (0.1) 0.3 0.2 At 31 March 2011 7.6 42.4 50.0
Depreciation charge for the year 0.8 4.5
5.3 Disposals for the year (0.2) (5.3) (5.5) Exchange differences (0.1) (0.6) (0.7) At 31 March 2012 8.1 41.0 49.1 Carrying amount At 1 April 2010 3.3 11.5 14.8 At 31 March 2011 3.0 9.9 12.9 At 31 March 2012 2.6 9.0 11.6
Property is comprised of leasehold properties and leasehold improvements. Plant and equipment is comprised of IT and office equipment.
Years ended 31 March 2012 2011 £m £m
Contractual commitments for the acquisition
of: Property, plant and equipment 0.8 -
Carrying amount of property, plant and equipment held 0.8
0.3 under finance leases 10 Net debt Years ended 31 March 2012 2011 £m £m Total financial liabilities - borrowings 127.1
Add back: Unamortised loan issue costs 2.4
Cash and cash equivalent assets (68.5) (70.5) Net debt 61.0 61.1
Analysis by currency after currency swaps
Years ended 31 March 2012 2011 £m £m Sterling 48.2 49.6 Euro (17.1) (16.0) Swiss Franc 11.2 10.4 Other European currencies 1.9 2.7 Canadian Dollar 15.2 10.0 US Dollar 1.9 1.4 Other currencies (0.3) 3.0 61.0 61.1
11 Retirement benefit obligations
Defined benefit pension arrangements
The Group's principal defined benefit pension arrangement is the Hogg Robinson (1987) Pension Scheme (the UK Scheme). The UK Scheme was closed to new members in March 2003, with benefits based on final pensionable salary. The increase in final pensionable salary since 31 March 2003 is limited to the lower of the increase in the Retail Prices Index and 5% per annum. The latest actuarial valuation of the scheme was carried out as at 31 March 2011 by an independent qualified actuary.
The Group also operates defined benefit schemes in Norway, Switzerland, Germany, Italy and France.
The following amounts have been included in the Consolidated Income Statement in respect of all defined benefit pension arrangements:
Years ended 31 March 2012 2011 £m £m Current service charge 3.8 4.1 Settlement gain (0.5) - Curtailment gain (0.1) (0.4) Charge to operating profit 3.2 3.7
Interest cost on pension scheme liabilities 19.3
Expected return on pension scheme assets (16.9) (15.6) Charge to finance costs 2.4 3.3
Total charge to Consolidated Income Statement 5.6
The following amounts have been recognised as movements in equity:
Years ended 31 March 2012 2011 £m £m
Actual return on scheme assets 9.9
Less: expected return on scheme assets (16.9) (15.6) (7.0) (0.4)
Experience gains and losses arising on scheme liabilities (0.7) 1.9
Changes in assumptions underlying the present value of
scheme liabilities (27.6) 7.0 (35.3) 8.5 Exchange rate movement 0.6 - Movement in the year (34.7) 8.5
Cumulative amount recognised in the Consolidated
Statement of Comprehensive Income since the transition date to IFRS, 1 (94.2) (59.5) April 2003
The key assumptions used for the UK Scheme were:
Years ended 31 March 2012 2011 2010 Rate of increase in salary 4.50% 4.70% 4.80% Rate of increase in final pensionable salary 3.20% 3.40%
Rate of increase in pensions in payment - accrued 5.00% 5.00% 5.00% before 1999 Rate of increase in pensions in payment - accrued 3.10% 3.40% 3.50% after 1999 Discount rate 5.00% 5.50% 5.50% Inflation - RPI 3.20% 3.40% 3.50% Inflation - CPI 2.70% 2.90% N/A
Expected rate of return on plan assets:
Equity instruments 7.25% 8.00% 8.00% Debt instruments 4.70% 4.50% 4.50% Property 7.25% 8.00% 8.00% Other assets 4.70% 4.90% 4.40%
The assumptions for the schemes in Norway, Switzerland, Germany, Italy and France do not produce materially different results from the assumptions used for the UK Scheme.
The expected rates of return have been set taking into account current market returns for each category of asset at the balance sheet dates.
The net present value of the defined benefit obligations of the UK Scheme is sensitive to both the actuarial assumptions used and to market conditions. If the discount rate assumption was 0.5% lower, the obligations would be expected to increase by £41.8m and if it was 0.5% higher, they would be expected to decrease by £35.9m. If the inflation assumption was 0.5% lower, the obligations would be expected to decrease by £14.1m and if it was £0.5% higher, they would be expected to increase by £18.4m. The mortality assumptions for the UK Scheme are based on PMA/FA92 tables with 'medium cohort' projections and a 1% underpin in the rate of future improvements in mortality. Life expectancy at the age of 65 is assumed to be: Years ended 31 March 2012 2011 Current Pensioners Male 23.5 22.8 Female 25.7 26.1 Future retirements Male 25.0 24.8 Female 27.3 28.2
The UK liability is based on the assumption that active and deferred members will take 25% of the value of their pension as a lump sum on retirement.
The net present value of the defined benefit obligations of the UK Scheme are sensitive to the life expectancy assumption. If there was an increase of one year to this assumption the obligations would be expected to increase by £ 10.2m.
The provision included in the Consolidated Balance Sheet arising from obligations in respect of defined benefit schemes is as follows:
Years ended 31 March 2012 2011 £m £m
Present value of defined benefit obligations
Unfunded scheme 10.1 9.5 Wholly or partly funded schemes 371.0 360.4 381.1 369.9 Fair value of scheme assets (235.3) (255.2) 145.8 114.7
The net present value of defined benefit obligations has moved as follows:
Years ended 31 March 2012 2011 £m £m At beginning of year 369.9 360.3 Current service cost 3.8 4.1 Settlement gain (0.5) - Curtailment gain (0.1) (0.4) Interest cost 19.3 18.9
Contributions by plan participants 1.6
1.5 Actuarial losses / (gains) 28.3 (8.9)
Foreign currency exchange changes 0.2
2.8 Benefits paid (41.4) (8.4) At end of year 381.1 369.9
The fair value of scheme assets has moved as follows:
Years ended 31 March 2012 2011 £m £m At beginning of year 255.2 233.9
Expected returns on plan assets 16.9
15.6 Actuarial losses (7.0) (0.4)
Foreign currency exchange changes 0.8
2.8 Contributions by the employer 9.2 10.2
Contributions by plan participants 1.6
1.5 Benefits paid (41.4) (8.4) At end of year 235.3 255.2
The assets held in defined benefit schemes were as follows:
Years ended 31 March 2012 2011 £m £m Equity instruments 121.3 136.3 Debt instruments 78.1 66.8 Property 37.8 37.7 Other assets 24.9 14.4 Liability management exercise (26.8) - 235.3 255.2 During the year, deferred members of the UK scheme were offered the opportunity to transfer their accrued benefits out of the UK scheme to alternative pension providers on enhanced terms. The programme reduced the March 2012 assets and liabilities by approximately £33m, of which £26.8m will be settled after 31 March 2012.
None of the plan assets are represented by financial instruments of the Group. None of the plan assets are occupied or used by the Group.
For several years, the UK defined benefit scheme has been closed to new entrants and has capped increases in pensionable salary. The latest triennial valuation, effective April 2011, was agreed with the Trustees during the year. Cash contributions amounting to 14.8% of pensionable salaries, plus deficit reduction payments totalling £15.0m during the two years ending 31 March 2013 were agreed. Debt reduction payments from 1 April 2013, will amount to £7.7m per annum, as adjusted for increases in RPI.
The obligations and assets are split as follows:
Years ended 31 March 2012 2012 2012 2011 2011 2011 UK Overseas Total UK Overseas Total £m £m £m £m £m £m Defined benefit (333.3) (47.8) (381.1) (324.3) (45.6) (369.9) obligations Fair value of plan 199.2 36.1 235.3 220.2 35.0 255.2 assets Deficit (134.1) (11.7) (145.8) (104.1) (10.6) (114.7) Five year experience Years ended 31 March Years ended 31 March 2012 2011 2010 2009 2008 £m £m £m £m £m Defined benefit (381.1) (369.9) (360.3) (263.0) (269.4) obligations Fair value of plan 235.3 255.2 233.9 197.7 221.3 assets Deficit (145.8) (114.7) (126.4) (65.3) (48.1) Experience gains/ (losses) on plan liabilities (0.7) 1.9 1.9 2.5 (2.3) on plan assets (7.7) (0.4) 21.1 (46.3) (18.3)
Pension funding in excess of the charge to operating profit is shown in the Consolidated Cash Flow Statement as follows:
Years ended 31 March 2012 2011 £m £m Contributions less service cost (note 15) (6.0) (6.1) 12 Reserves Retained earnings Years ended 31 March 2012 2011 £m £m At 1 April (171.9) (191.4)
Retained profit for the financial year 24.2
19.8 Dividends (note 7) (4.7) (3.9) Non-controlling interests (1.9) (0.7)
Acquisition of non-controlling interest (note 14) (10.4)
Transaction costs (note 14) (0.3)
Shares purchased by Employee Benefits Trust (2.5)
Actuarial (loss) / gain on pension schemes (35.3)
Deferred tax movement on pension liability and 6.9 (4.2) share-based incentives
Transfer to retained earnings from exchange reserve 0.9
Transfer to retained earnings from share-based 3.0
- incentives reserve At 31 March (192.0) (171.9) Other reserves Share-based Exchange Hedging Total other incentives reserve reserve reserves £m £m £m £m Balance at 1 April 2010 3.2 10.2 - 13.4 Other comprehensive income:
Currency translation differences - (1.6) -
(1.6) Transactions with owners: Share-based incentives 2.2 - - 2.2 Balance at 31 March 2011 5.4 8.6 - 14.0 Other comprehensive income:
Currency translation differences - (2.8) -
Fair value gain on cashflow hedges - - 0.5
Transfer from exchange reserve to - (0.9) -
(0.9) retained earnings Transactions with owners:
Transfer from share-based incentives (3.0) - -
(3.0) reserve to retained earnings
Share-based incentives - charge for 2.4 - -
Share-based incentives - exercise of (0.1) - -
(0.1) CSOP options Balance at 31 March 2012 4.7 4.9 0.5 10.1 13 Non-controlling interests Years ended 31 March 2012 2011 £m £m At 1 April 3.6 3.4 Exchange differences (0.1) 0.1 Dividends paid (0.9) (0.6) Share of profit after tax 1.9 0.7
Acquisition of non-controlling interest (3.0)
- (note 14) At 31 March 1.5 3.6 14 Acquisitions Spendvision Holdings Limited On 30 March 2012 the Group acquired the 42% interest in Spendvision Holdings Limited which it did not already own for a total consideration of £13.4m satisfied by £8.4m in cash and £5.0m from the issue of 8.2m shares in Hogg Robinson Group plc. Spendvision Holdings Limited is a leading innovator in the development and support of transaction management solutions, including end-to-end expense management and payables automation. The acquisition provides an opportunity to strengthen the Group's product offering and end-to-end services proposition, and is consistent with the Group's strategy to provide a broader range of integrated products to its corporate clients linked to its own proprietary technology. The goodwill arising related to deferred consideration of £2.0m that was paid under pre-existing agreements resulting from a previous sale of shares in March 2008, this was consequently accounted for under IFRS 3 (2004). At the acquisition date, the carrying value of the non-controlling interest in Spendvision Holdings Limited was £3.0m. The difference of £10.4m between the consideration and the carrying value of the interest acquired has been recognised in retained earnings within equity. Acquisition-related costs of £ 0.3m have been charged to retained earnings. Analysis of cash flows on acquisition: Years ended 31 March 2012 2011 £m £m
Included in cash flows from investing activities Cash paid for acquisition of subsidiaries:
Executive Travel Associates - (0.3) Advanced Meeting Partner Corporation - (0.5) Spendvision Holdings Limited (2.0) - Total (2.0) (0.8)
Included in cash flows from financing activities: Acquisition of non-controlling interest (8.4)
Goodwill arising on acquisitions:
Spendvision Holdings Limited 2.0 -
15 Cash generated from operations
Years ended 31 March 2012 2011 £m £m
Profit before tax from continuing operations 34.1
28.9 Adjustments for:
Depreciation and amortisation (note 8 and 9) 14.8
13.7 Net increase in provisions 2.5 3.1
Share of results of associates and joint ventures (0.9)
- Net finance costs (note 4) 9.9 9.0 Pension curtailment credit - (0.4) Other timing differences 3.0 3.3 63.4 57.6 Cash expenditure charged to provisions (2.3)
Change in trade and other receivables 9.7
Change in trade and other payables (21.3)
Pension funding in excess of charge to operating profit (6.0) (6.1) (note 11)
Cash generated from operations 43.5