26th May 2010 07:17
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 HighlightsRevenue 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 conditionswhich is testimony to the resilience of the business model. We have continuedto control our cost base tightly without damaging our ability to benefit fromthe upturn and by doing so delivered against expectations. Our fee-basedbusiness model allows us to deliver first-class service and value to aportfolio of clients who remain loyal to HRG. By focusing on excellent serviceand helping clients control their travel budgets we have maintained our strongclient retention rate and secured net new wins. "In the coming months, we anticipate an increase in travel activity from ourexisting client base as businesses generally begin to benefit from any economicrecovery. Client revenues for April and May are expected to be similar to 2009even 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 clientscoming on stream during the course of the year. "While the pace and level of economic recovery remains unclear, the positivemomentum we are seeing is encouraging and, for the full year, we expect todeliver 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) was established in 1845 and is aninternational corporate travel services company with headquarters located inBasingstoke, Hampshire, UK. The HRG worldwide network, including contractedpartners, 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 andskilled operators together with proprietary technology which has been developedin-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 0900hBST today at Tulchan Communications, 85 Fleet Street, London EC4Y 1AE. (Pre-registration for this event is necessary to comply with securityprocedures at Tulchan Communications.) Copies of the presentation with audiocommentary 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 tocertain of the plans and current goals and expectations relating to the futurefinancial conditions, business performance and results of Hogg Robinson GroupPlc (HRG). By their nature, all forward-looking statements involve risk anduncertainty because they relate to future events and circumstances that arebeyond the control of HRG, including amongst other things, HRG's futureprofitability, competition with the markets in which the Company operates andits ability to retain existing clients and win new clients, changes in economicconditions generally or in the travel and airline sectors, terrorist andgeopolitical events, legislative and regulatory changes, the ability of itsowned and licensed technology to continue to service developing demands,changes in taxation regimes, exchange rate fluctuations, and volatility in theCompany's share price. As a result, HRG's actual future financial condition,business performance and results may differ materially from the plans, goalsand expectations expressed or implied in these forward-looking statements. HRGundertakes no obligation to publicly update or revise forward-lookingstatements, except as may be required by applicable law and regulation(including the Listing Rules). No statement in this announcement is intendedto 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 winteroperating conditions in the Northern Hemisphere have required a demonstrationof the resilience we have assured shareholders, clients and staff that theCompany is capable of. In extremely challenging business conditions, Hogg Robinson Group has deliveredanother year of good performance. This has been achieved, not from growingrevenues, although we continue to win new clients, but from effectivemanagement of the cost base. In practice this has meant taking tough decisionsabout 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 taxis well above last year. Taking into account the exceptional charge associatedwith adjusting the business cost base, earnings are more than sufficient tosupport our recommendation of a final dividend of 0.8p per share. Togetherwith the interim dividend of 0.4p per share, this maintains the payment toshareholders at the same level as last year. We remain committed to aprogressive dividend policy and expect to increase dividends as soon as it
isprudent to do so. Cash generation and debt levels continue to be a key area of focus for us andwhilst, as a result of management action, period end net debt is at anacceptable level, average debt through the year is somewhat higher. We arelooking at ways to improve this. Meanwhile our existing bank facilities willcontinue 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 onthe Group's defined benefit pension schemes has risen substantially this year. It reflects principally the latest investment values and interest rates at 31March 2010 together with actuarial assumptions about longevity and inflationover the life of the schemes. The deficit is inherently volatile. No newmembers have been admitted to the UK scheme since 2003 and we monitor thesituation carefully having regard to the interests of the shareholders andmembers of the schemes. Our Chief Executive, David Radcliffe, will deal with the detail of the businessperformance during the year in his Statement with further analysis in theOperational Review and Consolidated Financial Statements. Suffice it to say,without the decisive action taken by him and his colleagues responding to everchanging 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 tomarket conditions and will place client satisfaction at the top of its agenda. Combined with a keen attention paid to costs and margins, this should providethe best possible result for you, the shareholders and the other stakeholdersin the business, especially our employees. The economic and business situationhas been improving, albeit at different rates in different markets and ourbusiness clients are travelling more. This remains a highly competitiveservice sector but with our best-in-class technology and highly committedstaff, Hogg Robinson Group is in very good shape to take advantage of improvingeconomic conditions. My final words are to thank those who have left in the past year. Thank youfor your service and best wishes for the future. To my Board, Executive andother colleagues, thank you for all your hard work, dedication often undergreat 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 ushave seen. So, it is with great pride that I am able to report a set ofresults that show how well the HRG team has performed. Our business model hasdelivered for us at the same time as helping our clients reduce their travelspend. Despite a 12% reduction in client travel spend and a 7% reduction inour own revenues, we have managed our cost base to improve margins and deliverresults that were in line with expectations. As difficult as some of thesechanges were, I am convinced that we now have a fitter company that is betterable to serve its clients and deliver lasting value to its staff andshareholders. The first half of our financial year was in many ways a continuation of what weexperienced during the last six months of the previous year as our clientswrestled with the depth of the recession. They were increasingly willing tochange their travel policies, and often this created further opportunities
forHRG.
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 greateradoption of technology solutions and, in particular, lower cost, onlineself-booking tools, especially in North America. Secondly, even as clientssought ways to reduce their overall travel expenditure they continued to demandsolutions that offered good value. We have continued to focus on deliveringfirst-class bespoke solutions which combine products, services and geographiesto achieve greater overall efficiencies and cost savings. The question on most people's minds in this industry is not whether corporatetravel spending will recover but how quickly it will do so. By its verynature, forward visibility of corporate travel bookings is relatively limited. As a result of the decisive actions that we have taken during the past year orso, coupled with our stable client base and new client contracts, I amconvinced that HRG is very well positioned to grow. In doing so, we aredetermined to deliver value to our clients and positive returns to ourshareholders. Financial resultsRevenue of £326.8m was down 7.0% as reported, or down 11.6% at constantexchange rates. Underlying operating profit, which is before the amortisationof 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 acontribution of £1.4m from favourable movements in exchange rates. Aided bysignificantly lower net interest costs, underlying profit before tax was up
by15.0% 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 upby 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. Preparationsto 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 thefull-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 August2010 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 ourexisting client base as businesses generally begin to benefit from the economicrecovery. This should be supplemented as new clients come on stream during thecourse of the year. Despite the short-term closures of European airspace dueto volcanic ash, client revenues for April and May are expected to be similarto 2009. For the full year, we expect to deliver further progress. David RadcliffeChief Executive Operational Review Market overviewFrom a macro-economic perspective, data from the International Monetary Fund,the International Air Transport Association (IATA) and STR Global all suggestedthat the recession was easing as 2009 came to an end. While no one data setcorrelates directly with our business, we did see a similar pattern of recoveryand 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 prioryear (down 17% at constant exchange rates) as most clients focussed on costreduction. 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 Eyjafjallaj¶kullvolcano, which resulted in an unprecedented shutdown of European airspace,proved once again the value that our clients place on HRG, especially in acrisis. We estimate that about 40,000 clients' travellers were originallystranded as a result of the disruption. We worked tirelessly to provide ourclients with alternative travel itineraries wherever possible. Clients nowbetter appreciate the value we give to them and relationships have beencemented as they know they can turn to HRG when times get tough. We havereceived many accolades and notes of appreciation from our clients and haveheard many incredible 'war stories' from our clients and staff on 'the frontline'. 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, DiscoveryCommunications, Evonik, KKR, Novartis, Scottish Enterprise Department,Volkswagen, Wells Fargo and Wincanton. We also secured expanded contracts withexisting 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 ourkey strengths is the breadth of our client portfolio, with no single client orclient sector accounting for a significant share of client revenue.
Corporate Travel Management
EuropeYears 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 profitfell by £3.9m, despite a £0.9m benefit from currency movements. The overalldeclines in revenue and operating profit reflect the impact of the globalrecession on our clients, with travel activity and patterns impacted by acombination of headcount reductions and travel embargoes. Operational restructuring and cost reduction was a key focus during the secondhalf of the previous financial year as corporate travel activity levelsdeclined, and remained so in the period under review. We have reduced ouroperating costs to match lower client activity whilst at the same time ensuringservice levels were maintained at high levels and not adversely impacted. Werecognised an exceptional charge of £3.3m for restructuring initiatives toreduce costs in the Nordic region and the UK. Both of these initiatives arenow complete and we are beginning to see the benefit of these actions. Wecontinue to evaluate our network of branch offices throughout Europe,particularly those serving SME clients in the Nordic region, as we increasinglyfocus on large multinational managed clients. Our UK business returned another steady performance in the face of challengingconditions despite lower revenue, particularly amongst its Banking and Financeclients. We doubled the number of our UK travel consultants working from homeduring the year and this, combined with increased flexibility of telephonecall-flow switching, helped us to further develop our 'virtual' service networkand reduce our operating costs. Branch network rationalisation continues withfocus on core 'hub' and 'specialist' locations covering rail, hotel and 24/7support. In our German business we also reduced costs during the year in line with loweractivity levels. Year-on-year performance during the first half was made morechallenging given the benefit to prior-year results of the Euro 2008 footballchampionships. However, the second half showed a strong recovery withincreasing evidence of clients starting to return to pre-recession levels oftravel activity. Excellent progress was made during the year in re-shaping andre-positioning our German operations to focus on the large managed corporateclient market. This has already been rewarded with new client wins includingVolkswagen and Evonik. North AmericaYears 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 grewby £6.1m, including a £0.6m gain from currency movements, as the benefits ofour cost reduction programme began to flow through. The decline in travel revenue on a constant currency basis reflects the impactof the global economic downturn on our clients, particularly during the firsthalf of the financial year. Online travel bookings made by clients using HRG'sbooking tools rose from 29% to 41% year-on-year, providing further evidence ofthe change of business mix in this highly competitive market which tends tofavour transaction fees. A general trend towards online booking necessitatesefficient systems capable of dealing with high volumes of lower pricetransactions. HRG is well positioned to meet this challenge having invested inthis area a few years ago. We have restructured our North American operations through a variety ofmeasures, including reducing the number of office locations, introducing moresophisticated and flexible telephony and transaction processing systems, andincreasing the number and proportion of travel consultants working from home. All these initiatives have contributed to the sharp rise in underlyingoperating profit margin. Our consumer business, which manages the redemption of credit card loyaltypoints for several Canadian banks, performed well during the year as anincreasing number of cardholders redeemed their points for travel rewards. Wehave also recently launched a new online redemption product to help drivegrowth in this area. Asia PacificYears 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 ourmanagement team and operational structure. We strengthened our sales teams inthe key states of New South Wales, Western Australia, Queensland and Victoria. Our contract with the Queensland Government to provide a fully-integratedtravel management system was implemented successfully with mandated roll-out tokey departments. This is having a positive impact on this region's results
asactivity levels increase. We have seen a strong recovery amongst our Singapore-based clients withactivity levels returning to pre-recession levels. Clients in the Banking andFinance sectors have been the first to show volume recovery. Singapore is fastestablishing itself as a key hub for client travel consolidation programmeswith experienced staff, good language skills and a pro-business environment
allacting as catalysts. We are encouraged to note an increasing demand amongst our North Americanclients for consolidated travel service offerings across the Asia Pacificregion. We are beginning to implement a multi-country service consolidation inSingapore for one of our larger Manufacturing sector clients, having overcomethe inevitable complexities resulting from multiple language, cultures and
GDSsources. Our joint ventures in Hong Kong and mainland China both showed similar signs ofrecovery to that seen in Singapore. As associates, their results are notincluded in the table above. SpendvisionYears 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 ofconsolidation during which we increased investment in resources for productdelivery and customer support. Spendvision is our proprietary innovator of transaction management solutionsincluding end-to-end expense management. Its online technology providessemi-automated expense claims processing to employees while offering a companyenhanced control and visibility of its indirect expenses. The Spendvision business continued to expand during the year. Spendvisiontechnology is now operating with clients in nearly 130 countries and thesoftware platform is available in 15 languages. During the year, we opened anoffice in Singapore to support growth in Asia Pacific and established a jointventure 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. Workhas progressed well since then and Visa has now launched its IntelliLink SpendManagement product, a white-label version of Spendvision's platform, providinga new global information tool which offers extensive reporting and expensemanagement capabilities for organisations of all sizes on a single scalableplatform, integrating with the entire suite of Visa B2B payment products. Thisis being rolled out to all Visa commercial card issuing banks around the worldand is a ground-breaking development for Spendvision. TechnologyHRG is developing a number of client-facing tools, including those which notonly allow clients to book travel quickly but which also focus on visibilityand keeping track of travel spend. With constant changes by suppliers totravel content (e.g. real-time updates to fares and seat availability), coupledwith the need for more efficient and cost effective processes, technologycontinues to remain a critical factor in the travel services market. Withtravel budgets tightening during the recession, companies have switched theirfocus from simply 'making booking easier and faster' to 'value' and, crucially,how technology can help them make savings. Our existing technology and newsystem developments allow us to demonstrate the value proposition to ourclients and are key parts of our offering. We continued to develop and deploy our own technology during the year. Thefocal 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 suppliersto fully integrate their systems seamlessly with HRG's software. The initialdevelopment phase in relation to USP is now complete and USP has enteredoperational use. Amongst a number of benefits, USP enables us to connect tovarious travel service providers, as well as to hold and compile variousrequired data sets. USP thereby enables access to information and inventoryfrom a number of sources rather than placing sole reliance on an industryplatform. 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 bookingtool. These were well received by clients and enhanced our capability ofoffering an independent integrated solution to our clients as required. Ourproduct portal i-Suite, offering clients a gateway to HRG applications andthird-party products, is now used by over 200,000 users. In addition, newreleases of HRG Reporting (online tool providing clients with relevant key dataabout 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 thisyear in the drive to control costs. Our new reporting suite enables ourclients to view critical data online in an intuitive way with both high leveldashboards and more detailed data views. In addition to these initiatives, ourown agency point-of-sale tool went into full operational use in one of our mainbusiness travel centres. This roll-out will continue during the currentfinancial year. At the end of the year we signed a deal with a customer to supply a brandedversion of our online booking tool together with access to our other corporatetravel technology which will open new revenue streams for both parties. Thistransaction takes HRG's technology offering into a new arena and positions uswell as an industry provider of selected technology products. HRG's client-centric strategy means that we will work with any product thatmeets our clients' needs or has been explicitly selected by the client. Wegive our clients access to the self-booking tool where this is the mostappropriate approach. Where the travel itinerary is relatively straightforwardclients continue to make bookings directly. There are examples of clients whoalready make 90% of their bookings online. This allows HRG to deploy resourcesin other areas whilst allowing the client to manage their travel arrangementsdirectly 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 datatraffic) services and continue to roll out our strategy of virtualisation ofour 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 profitUnderlying operating profit, which is before amortisation of acquiredintangibles and exceptional items, increased by 1.7% (£0.6m) to £35.2m. Thisincludes a benefit of £1.4m from favourable currency translation. Theunderlying 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 fromunutilised accruals related to acquisitions in prior years and a cost of £0.3min respect of an adjustment to goodwill in Germany associated with recognitionof additional deferred tax assets on acquisitions in earlier years. Thislatter item is offset by a deferred tax credit and therefore has no impact
onnet earnings for the year. Net finance costsNet finance costs reduced by £3.0m to £7.0m, with favourable interest ratesreducing net external interest by £5.2m partially offset by £2.0m of highercosts relating to pension accounting under IAS 19, Employee Benefits. Therewas 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% ofthe reported profit before tax, compared to an overall rate of 41% in the prioryear. The effective tax rate for the year on underlying profit before tax was30% compared to 36% in the prior year, primarily as a result of resolving anumber of open issues with tax authorities and the ability to recognise furtherdeferred tax assets. Return on capital employedReturn on capital employed is calculated by dividing underlying operatingprofit plus net share of the results of associates and joint ventures byaverage net assets. Average net assets are based on the 12 month ends for thefinancial year and exclude net debt, pension deficits and tax provisions. Average net assets amounted to £209.4m (FY09: £211.3m) compared with £165.9m atthe year end (FY09: £173.8m). The return for the year was 16.9% (FY09: 16.4%). Cash flowFree 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 externalinterest. Typical working capital requirements are much higher than the levelsreported at the year end. Capital expenditure increased by £1.7m to £11.1m dueprimarily to continuing investment in North America and the impact of changesin exchange rates.
In addition to free cash flow, the other major cash flow items are related todividends. Dividends paid in cash to shareholders during the year were £1.2mcompared to £12.0m in the prior year. Last year, only an interim dividend waspaid in cash. Looking forward, the recommended final dividend of 0.8p pershare 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 assetsincreased by £31.7m, primarily as a result of investment performance. Thescheme liabilities increased by £96.3m, with a lower discount rate adding £66.7m and a higher inflation rate assumption adding £20.8m. Annual cashcontributions amount to 15.2% of pensionable salaries plus a deficit reductionpayment 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 debtThe Group's principal borrowing is from a £220m multi-currency revolving creditfacility (RCF) that is committed until September 2011. The RCF is used forloans, letters of credit and guarantees with interest based on LIBOR/EURIBORplus a margin and mandatory costs incurred by the lenders. In addition, thereare uncommitted facilities, amounting to around £26m at the year end, which areused for local flexibility. The principal banking covenants for the RCF are measured twice each year, atthe end of March and the end of September, against EBITDA. The covenantsrequire that net debt is less than 3.0 times EBITDA and net external interestis covered at least 4.0 times by EBITDA. The definition of EBITDA for covenantpurposes is not materially different to the definition used in these financialstatements.
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 Goodwill and other intangible assets 8 253.5
258.0
Property, plant and equipment 9 14.8
15.1
Investments accounted for using the equity method 2.7 2.8 Trade and other receivables 0.1 0.2 Deferred tax assets 48.8 33.8 319.9 309.9 Current assets Trade and other receivables 115.4 102.6 Financial assets - derivative financial instruments 0.2 - Current tax assets 1.0 1.5 Cash and cash equivalent assets 58.8 68.5 175.4 172.6 Total assets 1 495.3 482.5 Non current liabilities Financial liabilities - borrowings (135.1) (144.4) Deferred tax liabilities (1.6) (1.6) Retirement benefit obligations 11 (126.4) (65.3) Provisions (3.5) (3.4) (266.6) (214.7) Current liabilities Financial liabilities - borrowings (0.4)
(8.0)
Financial liabilities - derivative financial instruments - (0.6) Current tax liabilities (9.4) (9.3) Trade and other payables (216.7) (196.5) Provisions (1.5) (5.7) (228.0) (220.1) Total liabilities (494.6) (434.8) Net assets 0.7 47.7 Capital and reserves attributable to Equity Shareholders Share capital 3.1 3.1 Share premium 172.2 172.2 Other reserves 12 13.4 24.1 Retained earnings 12 (191.4) (155.2) (2.7) 44.2 Minority interests 13 3.4 3.5 Total equity 0.7 47.7 Hogg Robinson Group plc
Consolidated Statement of Changes in Equity
As at 31 March 2010 Attributable to equity holders of the Company Share Share Other Retained Minority Total capital Premium reserves earnings Total Interest Equity £m £m £m £m £m £m £m Balance at 1 April 2008 3.1 171.9 5.3 (132.8) 47.5 2.5 50.0
Retained profit for the financial year - -
- 7.4 7.4 1.7 9.1 Other comprehensive income: Actuarial loss on pension schemes - -
- (23.4) (23.4) - (23.4)
Deferred tax movement on pension liability - -
- 5.9 5.9 - 5.9
Currency translation differences - - 17.6 - 17.6 0.1 17.7 Total comprehensive income - - 17.6 (10.1) 7.5 1.8 9.3 Transactions with owners: Dividends - - - (12.3) (12.3) (0.8) (13.1) Scrip dividend issued in lieu of cash dividend - 0.3 - - 0.3 - 0.3 Share-based incentives - - 1.2 - 1.2 - 1.2
Total transactions with owners - 0.3
1.2 (12.3) (10.8) (0.8) (11.6) Balance at 1 April 2009 3.1 172.2 24.1 (155.2) 44.2 3.5 47.7
Retained profit for the financial year - - - 13.4 13.4 0.9 14.3 Other comprehensive income: Actuarial loss on pension schemes - - - (66.0) (66.0) - (66.0) Deferred tax movement on pension liability - - - 18.7 18.7 - 18.7 Currency translation differences - -
(11.8) - (11.8) - (11.8) Total comprehensive income - - (11.8) (33.9) (45.7) 0.9 (44.8) Transactions with owners: Dividends - - - (1.2) (1.2) (1.0) (2.2) Shares purchased by Employee Benefits Trust - - - (1.1) (1.1) - (1.1) Share-based incentives - - 1.1 - 1.1 - 1.1
Total transactions with owners - -
1.1 (2.3) (1.2) (1.0) (2.2) Balance at 31 March 2010 3.1 172.2 13.4 (191.4) (2.7) 3.4 0.7 Hogg Robinson Group plc
Consolidated Cash Flow Statement For the year ended 31 March 2010
Years ended 31 March Notes 2010 2009 £m £m
Cash flows from operating activities
Cash generated from operations 14 36.2 65.2 Interest paid (3.6) (8.6) Tax paid (5.1) (3.8) Cash flows from operating activities - net 27.5 52.8
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired - (0.3) Acquisition of associates, joint ventures and other investments (0.3) - Disposals of associates, joint ventures and other investments - 0.4 Purchase of property, plant and equipment (4.5) (5.4) Purchase and internal development of intangible assets 8 (6.7) (4.1) Proceeds from sale of property, plant and equipment 0.1 0.1 Interest received 0.3 1.4 Dividends received from associates and joint ventures 0.5 0.3 Cash flows from investing activities - net (10.6) (7.6)
Cash flows from financing activities
Repayment of borrowings (40.3) (34.0) New borrowings 21.1 15.0 Cash effect of currency swaps (1.2) (3.9) Employee Benefits Trust (1.1) - Dividends paid to external shareholders (1.2) (12.0) Dividends paid to minority interests (1.0) (0.8) Cash flows from financing activities - net (23.7) (35.7) Net (decrease) / increase in cash and cash equivalents (6.8) 9.5 Cash and cash equivalents at beginning of the year 63.3 48.5 Exchange rate effects 1.7 5.3 Cash and cash equivalents at end of the year 58.2 63.3 Cash and cash equivalent assets 58.8 68.5 Overdrafts (0.6) (5.2) 58.2 63.3
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 BalanceSheet, the Consolidated Statement of Changes in Equity and the ConsolidatedCash Flow Statement and related notes do not constitute the Company's statutoryaccounts for the years ended 31 March 2010 and 2009, but is derived from thoseaccounts. The auditors have reported on the Group's statutory accounts foreach of the years ended 31 March 2009 and 31 March 2010. Their reports wereunqualified, did not draw attention to any matters by way of emphasis and didnot contain statements under s498(2) or (3) of Companies Act 2006 or equivalentpreceding legislation. The statutory accounts for the year ended 31 March 2009have been delivered to the Registrar of Companies and the statutory accountsfor the year ended 31 March 2010 will be filed with the registrar in duecourse. The Consolidated Financial Statements have been prepared in compliance withInternational Financial Reporting Standards (IFRS) as adopted by the EuropeanUnion, International Financial Reporting Interpretations Committee (IFRIC)interpretations and with those parts of the Companies Act 2006 applicable tocompanies reporting under IFRS. The Consolidated Financial Statements havebeen prepared under the historical cost convention, as modified by the use ofvaluations for certain financial instruments, share-based payment incentivesand retirement benefits.
Critical accounting policies and forward-looking statements
The preparation of the IFRS financial statements requires the use of estimatesand assumptions that affect the reported amounts of assets and liabilities atthe date of the Consolidated Financial Statements and the reported amounts ofrevenues and expenses during the year. This Operational Review should be read in conjunction with the auditedConsolidated Financial Statements. The discussions contain forward-lookingstatements that appear in a number of places and include statements regardingHRG's intentions, beliefs or current expectations concerning, among otherthings, results of operations, revenue, financial condition, liquidity, growth,strategies, new products and the markets in which HRG operates. Readers arecautioned that any such forward-looking statements are not guarantees of futureperformance and involve risks and uncertainties. Non-GAAP measures
Underlying operating profit is calculated as operating profit before amortisation of acquired intangibles and exceptional items
Earnings Before Interest, Taxation, Depreciation and Amortisation (EBITDA) is calculated as operating profit before exceptional items before net finance costs, income taxes, depreciation, amortisation and impairment.
The Directors believe that the presentation of underlying operating profit andEBITDA enhances an investor's understanding of HRG's financial performance.However, underlying operating profit and EBITDA should not be considered inisolation or viewed as substitutes for retained profit, cash flow fromoperations or other measures of performance as defined by IFRS. Underlyingoperating profit and EBITDA as used in this announcement is not necessarilycomparable to other similarly titled captions of other companies due topotential inconsistencies in the method of calculation and are unaudited lineitems but are derived from audited financial information. The Directors useunderlying operating profit and EBITDA to assess HRG's operating performanceand to make decisions about allocating resources among various reportingsegments. 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 oftwo core activities, Corporate Travel Management, which is analysed into threedistinct geographic segments, and Spendvision. The Group's internal reportingprocesses do not distinguish between the numerous sources of income thatcomprise revenue for Corporate Travel Management. The performance of theoperating segments is assessed based on a measure of operating profit excludingitems of an exceptional nature. Interest income and expenditure and income taxexpense are not included in the result for each operating segment that isreviewed by the Executive Management Team. Other information provided, exceptas noted below, to the Executive Management Team is measured in a mannerconsistent with that in the financial statements. Total segment assets exclude cash and cash equivalent assets, current taxassets and deferred tax assets which are managed on a central basis. These areincluded as part of the reconciliation to total Consolidated Balance Sheetassets. Corporate Travel Management Spendvision Total North Asia Europe America Pacific Total £m £m £m £m £m £m Year ended 31 March 2010
Revenue from external customers 229.6 69.3 16.7 315.6
11.2 326.8 Underlying operating profit 28.1 6.8 (1.1) 33.8 1.4 35.2
Amortisation of acquired intangibles (2.9) (0.7) - (3.6)
(0.3) (3.9)
Operating profit before exceptional items 25.2 6.1 (1.1) 30.2
1.1 31.3 Exceptional items (3.3) - - (3.3) - (3.3) Operating profit 21.9 6.1 (1.1) 26.9 1.1 28.0 Underlying margin 12.2% 9.8% -6.6% 10.7% 12.5% 10.8%
Year ended 31 March 2009 (restated)
Revenue from external customers 257.9 67.6 16.0 341.5
9.8 351.3 Underlying operating profit 32.0 0.7 (1.0) 31.7 2.9 34.6
Amortisation of acquired intangibles (2.7) (0.7) - (3.4)
(0.3) (3.7)
Operating profit before exceptional items 29.3 - (1.0) 28.3
2.6 30.9 Exceptional items (4.3) (1.3) - (5.6) - (5.6) Operating profit 25.0 (1.3) (1.0) 22.7 2.6 25.3 Underlying margin 12.4% 1.0% -6.3% 9.3% 29.6% 9.8%
The results for the year ended 31 March 2009 have been restated to reflect Spendvision as a separate operating segment.
External revenue from clients by geographical area (where the client is located) is not materially different from external revenue from clients by origin (where the Group's operations are located) disclosed above.
There is no material inter-segment revenue.
A reconciliation of operating profit to total profit before income tax expense is provided in the Consolidated Income Statement.
Corporate Travel Management Spendvision Total North Asia Europe America Pacific Total £m £m £m £m £m £m Total segment assets 31 March 2010 272.0 95.7 12.1 379.8 6.9 386.7 31 March 2009 (restated) 275.1 87.6 11.5 374.2 4.5 378.7
The segment assets at 31 March 2009 have been restated to reflect Spendvision as a separate operating segment.
Reportable segments' assets are reconciled to total assets as follows:
31 March 31 March 2010 2009 £m £m Total segment assets 386.7 378.7 Cash and cash equivalent assets 58.8 68.5 Current tax assets 1.0 1.5 Deferred tax assets 48.8 33.8 495.3 482.5
Capital expenditure by geographical location:
Corporate Travel Management Spendvision Total North Asia Europe America Pacific Total £m £m £m £m £m £m Capital expenditure 31 March 2010 4.6 4.5 0.1 9.2 2.0 11.2 31 March 2009 (restated) 5.6 2.9 0.4 8.9 0.9 9.8
Capital expenditure by operating segment for the year ended 31 March 2009 has been restated to reflect Spendvision as a separate operating segment.
2 Operating expenses Year ended 31 March 2010 2009 £m £m
Underlying operating expenses
Staff costs (note 3) 193.6 208.6 Amortisation of other intangible assets 4.2 3.1 Depreciation of property, plant and equipment 5.1 4.6 Auditors' remuneration for audit services 1.7 1.7 Operating lease rentals - buildings 14.7 14.6 Operating lease rentals - other assets 1.8 1.9 Loss on disposal of property, plant and equipment 0.1 0.1 Currency translation differences 0.2 (0.2) Other expenses 70.2 82.3 291.6 316.7
Amortisation of acquired intangibles:
Amortisation of client relationships 3.6 3.4 Amortisation of other acquired intangible assets 0.3 0.3 3.9 3.7 Exceptional items: Restructuring costs: - Staff costs (note 3) 2.6 6.6 - Other expenses 0.7 0.3
Release of unutilised accruals relating to acquisitions in prior years
- (1.6) Adjustments to goodwill on recognition of deferred tax assets - 0.3 3.3 5.6 Total operating expenses 298.8 326.0
Restructuring costs of £3.3m were incurred during the year (2009: £6.9m) and
relate to planned cost reduction programmes in Europe (2009: Europe and North
America). They are in respect of redundancy costs and onerous lease
provisions.
Certain unutilised accruals relating to acquisitions in prior years were
released in the year ended 31 March 2009. 3 Staff costs Years ended 31 March 2010 2010 2010 2009 2009 2009 Before Before exceptional Exceptional exceptional Exceptional items items Total items items Total £m £m £m £m £m £m Salaries 163.4 - 163.4 175.0 - 175.0 Social security costs 19.0 - 19.0 21.4 - 21.4 Pension costs 8.4 - 8.4 9.9 - 9.9 Redundancy and termination costs 1.7 2.6 4.3 1.1 6.6 7.7 Share-based incentives 1.1 - 1.1 1.2 - 1.2 193.6 2.6 196.2 208.6 6.6 215.2 Pension costs comprise: Defined benefit schemes (note 11) 2.3 - 2.3 3.4 - 3.4 Defined contribution schemes 6.1 - 6.1 6.5 - 6.5 8.4 - 8.4 9.9 - 9.9 Years ended 31 March 2010 2009 number number Average monthly number of staff employed by the Group including Key Management 5,319 6,236
4 Finance income and finance costs
Years ended 31 March 2010 2009 £m £m Finance income - bank interest 0.2 1.3 Interest on bank overdrafts and loans (3.4)
(9.6)
Amortisation of issue costs on bank loans (0.6)
(0.4)
Expected return on pension scheme assets less interest cost on pension scheme liabilities (3.2) (1.2) Other finance charges - (0.1) Finance costs (7.2) (11.3) Net finance costs (7.0) (10.0) 5 Income tax expense Years ended 31 March 2010 2009 £m £m Current tax: Tax on profits of the financial year 6.1 3.8 Adjustments in respect of previous years (0.9) (0.9) Total current tax 5.2 2.9 Deferred tax: Origination and reversal of temporary differences 1.7 2.2 Adjustments in respect of previous years - 1.4 Adjustments to goodwill on recognition of deferred tax assets - (0.2) Total deferred tax 1.7 3.4 Taxation charge 6.9 6.3 The tax charge is split as follows: Years ended 31 March 2010 2009 £m £m United Kingdom 3.6 4.7 Overseas 3.3 1.8 Adjustments to goodwill on recognition of deferred tax assets - (0.2) Taxation charge 6.9 6.3 Years ended 31 March 2010 2009 restated £m £m On recurring business 8.4 8.8 Tax on amortisation of acquired intangibles (1.2) (1.1) Exceptional items (0.3) (1.4) Taxation charge 6.9 6.3
The analysis for the year ended 31 March 2009 has been restated to disclose the
tax effect of amortisation of acquired intangibles. 6 Earnings per share
Basic earnings per share (EPS) is calculated by dividing the earnings
attributable to Shareholders 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 2010 2009 £m £m Earnings for the purposes of earnings per share: Profit for the financial year 14.3
9.1
Less: amount attributable to minority interest (0.9) (1.7) Total 13.4 7.4 Years ended 31 March
Weighted average number of Ordinary shares 2010
2009 in issue number number m m Issued (for basic EPS) 301.5 304.2 Dilutive potential Ordinary shares 9.9 4.5 For diluted EPS 311.4 308.7
The weighted average number of issued Ordinary shares is lower in the year
ended 31 March 2010 compared to the year ended 31 March 2009 due to the impact of the shares purchased by the Employee Benefits Trust. The Employee Benefits Trust waived its rights to dividends in respect of 4,000,000 shares purchased in the year ended 31 March 2010. Underlying earnings per share Underlying earnings per share is calculated on the profit attributable to equity shareholders before amortisation of acquired intangibles and exceptional items after charging taxation associated with those profits of £ 19.1m (2009: £14.2m). Years ended 31 March 2010 2009 £m £m Profit before tax 21.2 15.4 Add: amortisation of acquired intangibles 3.9 3.7 Add: exceptional items 3.3 5.6 Underlying profit before tax 28.4
24.7
Underlying income tax expense (8.4) (8.8) Underlying profit for the financial year 20.0 15.9 Less: amounts attributable to minority interests (0.9) (1.7) Total 19.1 14.2 7 Dividends per share The dividends to the Company's shareholders in the year ended 31 March 2010 were: Years ended 31 March 2010 2009 £m £m Final dividend in respect of year ended 31 March 2009 0.0p per share (31 March 2008 2.8p per share) - 8.6 Interim dividend in respect of year ended 31 March 2010 0.4p per share (31 March 2009 1.2p per share) 1.2 3.7 Total dividends to the Company's shareholders (note 23) 1.2 12.3 A final dividend in respect of the year ended 31 March 2010 of 0.8p per
Ordinary share, amounting to a total dividend of £2,430,103, is to be proposed
at the Annual General Meeting on 26 July 2010. The Employee Benefits Trust has
waived its rights to dividends in respect of 4,000,000 shares purchased in the year ended 31 March 2010.
Scrip dividends to the value of £0.1m in respect of the interim dividend for
the year ended 31 March 2009 and to the value of £0.2m in respect of the final
dividend for the year ended 31 March 2008 were taken instead of a cash payment.
8 Goodwill and other intangible assets
Years ended 31 March 2010 2009 £m £m Goodwill 221.8 225.6 Other intangible assets 31.7 32.4 253.5 258.0 Other intangible assets Other intangible assets Computer software Externally Internally Client Goodwill acquired generated relationships Total £m £m £m £m £m Cost At 1 April 2008 229.5 16.2 6.1 31.4 283.2 Additions - 0.8 3.3 - 4.1 Reclassification of assets - - 2.5 - 2.5 Disposals - (1.4) - - (1.4) Adjustments to goodwill on recognition of tax assets (0.3) - - - (0.3) Adjustments to deferred consideration (0.2) - - - (0.2) Exchange differences 23.0 1.3 0.2 6.7 31.2 At 31 March 2009 252.0 16.9 12.1 38.1 319.1 Additions - 1.6 5.1 - 6.7 Disposals - (2.9) - - (2.9) Adjustments to deferred consideration (0.2) - - - (0.2) Exchange differences (3.6) 0.6 0.7 (0.7) (3.0) At 31 March 2010 248.2 16.2 17.9 37.4 319.7 Accumulated amortisation At 1 April 2008 26.4 10.5 3.0 11.9 51.8 Amortisation charge for the year - 1.9 1.5 3.4 6.8 Disposals - (1.4) - - (1.4) Exchange differences - 1.0 - 2.9 3.9 At 31 March 2009 26.4 12.0 4.5 18.2 61.1 Amortisation charge for the year - 1.9 2.6 3.6 8.1 Disposals - (2.9) - - (2.9) Exchange differences - 0.2 (0.1) (0.2) (0.1) At 31 March 2010 26.4 11.2 7.0 21.6 66.2 Carrying amount At 1 April 2008 203.1 5.7 3.1 19.5 231.4 At 31 March 2009 225.6 4.9 7.6 19.9 258.0 At 31 March 2010 221.8 5.0 10.9 15.8 253.5 The recoverable amount used in the assessment of goodwill for all cashgenerating units comprises value in use. During the year the Group reviewedits discount rate and long term growth rates and these have been applied in theassessment. The value in use has been calculated by discounting at 8% perannum (2009: 10% per annum) the anticipated post-tax cash flows. This equatesto an estimated pre-tax discount rate of 8.3% per annum. The forecasts areprepared from management information taking into account historical tradingperformance and anticipated changes in future market conditions. The detailedforecasts cover a period of three years from the balance sheet date; cash flowsare projected beyond that period based on anticipated long-term growth of 2%(2009: 2%).
The amortisation charge for the year of £8.1m (2009: £6.8m) is comprised of £3.9m (2009: £3.7m) in respect of intangible assets acquired via businesscombinations and £4.2m (2009: £3.1m) which relates to amortisation of softwarepurchased and internally generated by existing businesses. Goodwill consists of the following amounts related to cash generating units ofthe Group: Years ended 31 March 2010 2009 restated £m £m Corporate Travel Management UK 56.9 56.9 Sweden 14.6 14.6 Norway 17.9 17.9 Germany 45.7 47.4 Switzerland 20.0 19.6 North America 45.6 48.1 Other 17.6 17.6 218.3 222.1 Spendvision 3.5 3.5 221.8 225.6
The analysis of goodwill at 31 March 2009 has been restated to reflect Spendvision as a separate operating segment.
9 Property, plant and equipment
Property Plant and equipment Total £m £m £m Cost At 1 April 2008 9.3 38.9 48.2 Additions for the year 0.5 5.2 5.7 Disposals for the year (0.2) (3.1) (3.3) Exchange differences 1.0 5.4 6.4 At 31 March 2009 10.6 46.4 57.0 Additions for the year 0.2 4.3 4.5 Disposals for the year (0.6) (2.2) (2.8) Exchange differences 0.3 1.3 1.6 At 31 March 2010 10.5 49.8 60.3 Accumulated depreciation At 1 April 2008 5.2 30.4 35.6 Depreciation charge for the year 0.9 3.7 4.6 Disposals for the year (0.1) (2.8) (2.9) Exchange differences 0.6 4.0 4.6 At 31 March 2009 6.6 35.3 41.9 Depreciation charge for the year 0.9 4.2 5.1 Disposals for the year (0.6) (1.9) (2.5) Exchange differences 0.3 0.7 1.0 At 31 March 2010 7.2 38.3 45.5 Carrying amount At 1 April 2008 4.1 8.5 12.6 At 31 March 2009 4.0 11.1 15.1 At 31 March 2010 3.3 11.5 14.8
Property is comprised of leasehold properties and leasehold improvements. Plant and equipment is comprised of IT and office equipment.
Years ended 31 March 2010 2009 £m £m
Contractual commitments for the acquisition of:
Property, plant and equipment 0.1 1.5
Carrying amount of property, plant and equipment held under finance leases
0.3 0.5 10 Net debt Years ended 31 March 2010 2009 £m £m
Total financial liabilities - borrowings 135.5
152.4
Add back: Unamortised loan issue costs 0.8
1.4
Cash and cash equivalent assets (58.8)
(68.5) Net debt 77.5 85.3
Analysis by currency after currency swaps
Years ended 31 March 2010 2009 £m £m Sterling 48.6 66.2 Euro (11.6) (15.1) Swiss Franc 11.0 14.9 Other European currencies 4.8 (1.2) Canadian Dollar 21.4 18.2 US Dollar (0.4) (0.8) Other currencies 3.7 3.1 77.5 85.3 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 available to most UKemployees until it was closed to new members in March 2003. Its benefits arebased on final pensionable salary. The increase in final pensionable salarysince 31 March 2003 is limited to the lower of the increase in the RetailPrices Index and 5% per annum. The latest actuarial valuation of the scheme wascarried out at 6 April 2008 by an independent qualified actuary.
The Group also operates defined benefit schemes in Norway, Switzerland, Germany and Italy.
The following amounts have been included in the Consolidated Income Statement in respect of defined benefit pension arrangements:
Years ended 31 March 2010 2009 £m £m Current service charge 2.8 3.4 Curtailment gain (0.5) - Charge to operating profit 2.3 3.4
Interest cost on pension scheme liabilities 16.3
16.1
Expected return on pension scheme assets (13.1)
(14.9) Charge to finance costs 3.2 1.2
Total charge to Consolidated Income Statement 5.5
4.6
The following amounts have been recognised as movements in equity:
Years ended 31 March 2010 2009 £m £m
Actual return on scheme assets 34.2
(31.4)
Less: expected return on scheme assets (13.1)
(14.9) 21.1 (46.3)
Experience gains and losses arising on scheme liabilities 1.9
2.5
Changes in assumptions underlying the present value of
scheme liabilities (89.2) 21.9 Exchange rate movement 0.2 (1.5) Movement in the year (66.0) (23.4)
Cumulative amount recognised in the Consolidated
Statement of Comprehensive Income since the transition date to IFRS, 1 April 2003 (68.0)
(2.0)
The key assumptions used for the UK Scheme were:
Years ended 31 March 2010 2009 2008 Rate of increase in salary 4.80% 4.00% 4.60% Rate of increase in final pensionable salary 3.50%
2.70% 3.30%
Rate of increase in pensions in payment - accrued before 1999 5.00% 5.00% 5.00%
Rate of increase in pensions in payment - accrued after 1999 3.50% 2.70% 3.30% Discount rate 5.50% 6.70% 6.30% Inflation 3.50% 2.70% 3.30%
Expected rate of return on plan assets:
Equity instruments 8.00% 7.20% 8.00% Debt instruments 4.50% 6.70% 5.30% Property 8.00% 7.20% 8.00% Other assets 4.40% 5.00% 5.40% The assumptions for the schemes in Norway, Switzerland, Germany and Italy donot produce materially different results from the assumptions used for the
UKScheme.
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 mortality assumptions for the UK Scheme are based on PMA/FA92 tables with'medium cohort' projections and a 1% underpin in the rate of futureimprovements in mortality. Life expectancy at the age of 65 is assumed to be: Years ended 31 March 2010 2009 Current Pensioners Male 22.7 22.6 Female 26.0 25.9 Future retirements Male 24.7 24.1 Female 28.1 27.5
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 provision included in the Consolidated Balance Sheet arising from obligations in respect of defined benefit schemes is as follows:
Years ended 31 March 2010 2009 £m £m
Present value of defined benefit obligations Unfunded scheme 9.6 8.9 Wholly or partly funded schemes 350.7 254.1 360.3 263.0 Fair value of scheme assets (233.9) (197.7) 126.4 65.3
The net present value of defined benefit obligations has moved as follows:
Years ended 31 March 2010 2009 £m £m At beginning of year 263.0 269.4 Current service cost 2.8 3.4 Curtailment gain (2.3) - Interest cost 16.3 16.1
Contributions by plan participants 1.4
1.6 Actuarial losses / (gains) 87.3 (24.4)
Foreign currency exchange changes 0.3
6.8 Benefits paid (8.5) (9.9) At end of year 360.3 263.0
The fair value of scheme assets has moved as follows:
Years ended 31 March 2010 2009 £m £m At beginning of year 197.7 221.3 Curtailment loss (1.8) -
Expected returns on plan assets 13.1
14.9 Actuarial gains / (losses) 21.1 (46.3)
Foreign currency exchange changes 0.5
5.3 Contributions by the employer 10.4 10.8
Contributions by plan participants 1.4
1.6 Benefits paid (8.5) (9.9) At end of year 233.9 197.7
The assets held in defined benefit schemes were as follows:
Years ended 31 March 2010 2009 £m £m Equity instruments 123.7 110.5 Debt instruments 64.1 62.7 Property 33.2 12.5 Other assets 12.9 12.0 233.9 197.7
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.
The schedule of contributions for the UK Scheme has been agreed with theTrustees at 15.2% of pensionable salaries plus £6.6m per annum with effect fromApril 2008. This is expected to amount to £8.7m for the year ending 31 March2011.
The obligations and assets are split as follows:
Years ended 31 March 2010 2010 2010 2009 2009 2009 UK Overseas Total UK Overseas Total £m £m £m £m £m £m Defined benefit obligations (319.3) (41.0) (360.3) (223.0) (40.0) (263.0) Fair value of plan assets 203.4 30.5 233.9 171.7 26.0 197.7 Deficit (115.9) (10.5) (126.4) (51.3) (14.0) (65.3) Five year experience Years ended 31 March 2010 2009 2008 2007 2006 £m £m £m £m £m
Defined benefit obligations (360.3) (263.0) (269.4) (274.8) (310.2)
Fair value of plan assets 233.9 197.7 221.3 214.9 185.7 Deficit (126.4) (65.3) (48.1) (59.9) (124.5)
Experience gains/(losses)
on plan liabilities 1.9 2.5 (2.3) (3.6) (1.8) on plan assets 21.1 (46.3) (18.3) 4.0 22.4
Pension funding in excess of the charge to operating profit is shown in the Consolidated Cash Flow Statement as follows:
Years ended 31 March 2010 2009 £m £m
Contributions less service cost (note 14) (7.6)
(7.2) 12 Reserves Retained earnings Years ended 31 March 2010 2009 £m £m At 1 April (155.2) (132.8) Retained profit for the financial year 14.3 9.1 Dividends (note 7) (1.2) (12.3) Minority interest (0.9) (1.7)
Shares purchased by Employee Benefits Trust
(1.1) - Actuarial loss (66.0) (23.4) Deferred tax movement on pension liability 18.7 5.9 At 31 March (191.4) (155.2) Other reserves Share-based Exchange Other incentives reserve reserves £m £m £m Balance at 1 April 2008 0.9 4.4 5.3 Other comprehensive income: Currency translation differences - 17.6 17.6 Transactions with owners: Share-based incentives 1.2 - 1.2 Balance at 1 April 2009 2.1 22.0 24.1 Other comprehensive income: Currency translation differences - (11.8) (11.8) Transactions with owners: Share-based incentives 1.1 - 1.1 Balance at 31 March 2010 3.2 10.2 13.4 13 Minority interests Years ended 31 March 2010 2009 £m £m At 1 April 3.5 2.5 Exchange differences - 0.1 Dividends paid (1.0) (0.8) Share of profit after tax 0.9 1.7 At 31 March 3.4 3.5
14 Cash generated from operations Years ended 31 March 2010 2009 £m £m Profit before tax from continuing operations 21.2 15.4 Adjustments for: Depreciation and amortisation (note 8 and 9) 13.2 11.4 Net increase in provisions 4.4 7.2 Share of results of associates and joint ventures (0.2) (0.1) Net finance costs (note 4) 7.0 10.0 Adjustments to goodwill on recognition of deferred tax assets (note 2) - 0.3 Pension curtailment credit (0.5) - Other timing differences 1.4 0.9 46.5 45.1 Cash expenditure charged to provisions (8.4) (3.2) Change in trade and other receivables (10.5) 27.3 Change in trade and other payables 16.2 3.2 Pension funding in excess of charge to operating profit (note 11) (7.6) (7.2) Cash generated from operations 36.2 65.2
vendorRelated Shares:
Hogg Robinson Group