27th Nov 2008 07:01
27 November 2008 Hogg Robinson Group plc (`HRG', `the Company' or `the Group') Half-year results for the six months ended 30 September 2008
Financial Highlights
* Revenue growth of 10.8% with organic growth at 1.0%
* EBIT(1) growth of 8.5%, which at constant exchange rates is unchanged from
prior year * EBIT margin broadly unchanged at 6.7% * Profit before tax up 24.5% to ‚£6.1m, up from ‚£4.9m * EPS (basic) from continuing operations up 57.1% to 1.1p
* Free cash outflow(2) of ‚£2.7m reflecting normal seasonality and similar to
last year
* Interim dividend maintained at 1.2p per share
Business Highlights
* Client retention rate remains above 90%
* Continued good growth in the client base with net new business wins over
the period * Solid performance in Europe * Early signs of progress in North America, benefiting from previous investments * Asia Pacific continues to build scale * Spendvision delivered revenue growth of 75% with EBIT up ‚£0.8m
Outlook
* Planning for the macroeconomic climate to be even more challenging, but
hopeful of finishing the year within expectations
1. Earnings Before Interest and Taxation, including HRG's after-tax share of
results of associates and joint ventures.
2. Free cash flow is the change in net debt before including acquisitions and
disposals, dividends, and the impact of foreign exchange movements.
David Radcliffe, Chief Executive of Hogg Robinson Group plc, said:
"Whilst we are by no means immune to the prevailing market conditions, the fundamentals of our business are sound. We are pleased to have delivered a modest increase in profits and are reassured by the fact that our clients continue to travel, albeit in many cases they are travelling differently.
Our strategy is to manage the business based on a cautious outlook. We continue to reduce costs whilst being more focused than ever on delivering excellent client service.
We are pleased that we continue to win more business than we lose and that our pipeline remains encouraging.
In the prevailing macroeconomic climate it is very difficult to predict withany certainty the outcome for the second half of our financial year.Nonetheless, given all that we can see currently in terms of workload, combinedwith the benefit of our cost and efficiency actions, we remain hopeful offinishing the year within current expectations."
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 A presentation for analysts and institutional investors will be held at 0900hGMT today at the Merrill Lynch Financial Centre, 2 King Edward Street LondonEC1A 1HQ. (Pre-registration for this event is necessary to comply with securityprocedures at Merrill Lynch.) Copies of the presentation with audio commentaryfrom HRG's presentation team will be available at http://investors.hoggrobinsongroup.com/hrg/ir/rp/res/ later today.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 Group.By their nature, all forward-looking statements involve risk and uncertaintybecause they relate to future events and circumstances that are beyond thecontrol of HRG, including amongst other things, HRG's future profitability,competition with the markets in which the Company operates and its ability toretain existing clients and win new clients, changes in economic conditionsgenerally or in the travel and airline sectors, terrorist and geopoliticalevents, legislative and regulatory changes, the ability of its owned andlicensed technology to continue to service developing demands, changes intaxation regimes, exchange rate fluctuations, and volatility in the Company'sshare price. As a result, HRG's actual future financial condition, businessperformance and results may differ materially from the plans, goals andexpectations 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 intended tobe a profit forecast or be relied upon as a guide to future performance.
Management Review
Overview
The macroeconomic climate for the last six months has been among the mostchallenging we have seen. Yet, despite that, and helped by our cost reductionactions, HRG has delivered both revenue and profit growth for the first half ofthe financial year. Notwithstanding the difficult market conditions, we see twopositive drivers to our business: (1) clients are continuing to travel; and (2)increased focus by managed clients on reducing their travel and relatedexpenditure continues to offer opportunities for us to deliver profitableservices. Consequently, our client retention rate remained above 90% and we wonmore business than we lost.Last year we restructured our European operations to improve efficiency and tocreate a single-market offering for the European region. During the first halfof the current financial year we have continued our cost reduction efforts andthese additional changes will support our performance in the second half andbeyond.For the first half, revenue increased by 10.8% and EBIT increased by 8.5%compared with the prior year. As indicated in June 2008, we have now adoptedearnings before interest and taxation (EBIT), which includes HRG's after-taxshare of results of associates and joint ventures, as our principal measure ofoperating performance. Our EBIT margin remained essentially unchanged from theprior year at 6.7%. Basic EPS on continuing operations benefited from a returnto a normal tax rate and rose by 57.1%, from 0.7p to 1.1p per share.After adjusting for the positive effect from movements in exchange rates andthe acquisition in Belgium in the prior year, the underlying organic growth inrevenue was 1.0% and EBIT was unchanged.Free cash outflow of ‚£2.7m reflects the normal seasonality of the business andis similar to the ‚£1.3m outflow in the prior year. Closing net debt of ‚£123mreflects the payment of the ‚£8.4m final dividend for the year ended 31 March2008. Our principal banking facility, a ‚£220m revolving credit line, wasnegotiated well before the current global financial crisis emerged and iscommitted until September 2011.The Board has declared an unchanged interim dividend of 1.2p per share whichwill become due and payable on 6 January 2009 to shareholders on the registerat 5 December 2008. A scrip dividend is again being offered and the relevantdocuments will be posted to shareholders during December 2008.
Client activity
Ours is a global service offering. We focus on travel management services for large corporate clients and are now concentrating our Events & Meetings Management (EMM) efforts primarily at our large corporate clients. Taken together, these Managed Travel activities represent around 85% of our total revenue, with the remaining 15% coming from unmanaged (SME) and Spendvision.
Our client base is very diverse, which reduces the potential impact on theGroup from weakness in any single client or sector. Our top ten clients accountfor 23% of our total revenue and, although Banking is our most importantsector, their employee travel accounts for less than 20% of our total revenue.Many of our client relationships are long-standing and have multi-yearcontracts.As a result of these dynamics, overall trading with our existing Managed Travelclients has been similar to the prior year, although it was ahead in the firstquarter but fell behind in the second quarter. This is consistent with othertravel industry comments which have indicated a decline in premium travel andforward bookings in recent months. The combined impact of new clients coming onstream and client losses was not material in the first half, but willcontribute to the second half results and should help mitigate any reductionsin revenue from our existing managed clients.We again delivered net new business wins during the first half and our pipelineof new business prospects remains strong. We continue to win new clients andextend our geographic coverage for existing clients, although it is clear thattimetables for client tenders are now longer as a result of the uncertainty inthe global marketplace.New clients we secured during the period continue to display the diversity ofsector and geography that we regard as one of our key strengths. Amongst newclient wins so far this year, we welcome DIRECTV, Lenovo, Nationwide BuildingSociety, Norwegian Department of Foreign Affairs, Smiths Group and Wachovia
toour various regions.Technology
It is not surprising that demand for technology solutions shows no signs ofabating as our clients increasingly seek to reduce service costs. This hasgiven us opportunities to introduce cost saving technology-based products andservices, including HRG's self-service reservation (SSR) tools that enableclients to create their own bookings over the internet, with access to a rangeof products that we work with. These help our clients gain greater compliancewhen mandating stricter travel policy implementations. Our online hotel bookingproduct is proving very popular and we are now integrating this applicationwith another SSR provider for a large UK client. Demand for our pre-tripreporting suite of information has also increased dramatically, as our clientsuse it to give them greater sight and control over their expenditure.Development of our Universal Super PlatformTM (USP) continues and it is beingrolled out across our global network, with one HRG network partner alreadystarting to install USP across its region. When completed, this platform willallow us to offer a range of products suitable to each geographic market from acommon base platform, meaning in some cases we will no longer be tied to afixed method of obtaining inventory. Products are now being deployed from theUSP including HRG Online and HRG Point of Sale (Agency Desktop) which willallow the seamless integration of clients' process flows with our own.We continue to work with all global distribution systems providers (GDS) onbehalf of our clients whilst also developing systems which will in futureenable us to access inventory independently when appropriate to do so. We arealso working closely with others in the industry to try and establish ways tobring common standards where possible.
Operating review
The consolidated results are as follows:
Group
Six months ended 30 September 2008 2007 Change
Revenue ‚£171.0m ‚£154.4m +10.8% EBIT ‚£11.5m ‚£10.6m +‚£0.9m EBIT margin 6.7% 6.9% -0.2%Europe
Six months ended 30 September 2008 2007 Change
Revenue ‚£128.1m ‚£114.4m +12.0% EBIT ‚£11.5m ‚£11.0m +‚£0.5m EBIT margin 9.0% 9.6% -0.6%Our European operations, which account for approximately 75% of Group revenues,delivered a solid performance during the period. Reported revenue was up by12.0%, including organic growth of 1.4% and 9.6% growth from favourablecurrency movements. Despite some increased restructuring costs, EBIT grew by ‚£0.5m to ‚£11.5m, although the result does include a ‚£0.8m benefit from currencymovements. There was also a small positive contribution to revenue and EBITarising from the acquisition last year of HRG's existing network partner inBelgium.Organic revenue from Managed Travel was up, with good growth in the UK, Germanyand Norway covering a downturn in Switzerland. The UK benefited from the startof the Ministry of Defence and Foreign & Commonwealth Office contract andGermany was boosted by the Euro 2008 football championship.
Organic revenue from SME fell by 14% in real terms, with the UK, Sweden and Germany worst hit.
During the period, we appointed a new managing director in Germany. We madefurther investment to upgrade our telephony systems to enable us to improve ourcall management through the ability to flow calls around key centres in Europe.Linked to this, we implemented a Business Travel Centre capacity managementproject to optimise call volume and resource flows across Europe. We continuedto increase the number of home workers in the UK which will add flexibility tostaffing levels and reduce the need to increase office space.
North America
Six months ended 30 September 2008 2007 Change
Revenue ‚£32.5m ‚£31.2m +4.2% EBIT (‚£0.1m) (‚£0.5m) +‚£0.4m EBIT margin (0.3%) (1.6%) +1.3%
Reported revenue for HRG's North American business grew by 4.2% during the period, which was equivalent to a decline of 1.9% after taking account of currency benefits. Following our earlier investments, combined with the improved performance of Spendvision, EBIT has begun to improve and reached around breakeven. A majority of revenues in this region derive from managed client business, including EMM and Sports. There was a small contribution from unmanaged clients, unchanged year-on-year.
The North American market continues to be especially competitive. Last year wemerged our back-office operations in the USA and Canada to meet this challenge,and started a rigorous programme to improve the productivity in ourclient-facing operations. We also invested in capacity and infrastructure tomeet the needs of our new large global clients. These activities are startingto bear fruit, as evidenced by the positive trend in profitability, but acontinuing focus on productivity is essential if we are to continue to improveour financial performance in this market.Asia PacificSix months ended 30 September 2008 2007 Change Revenue ‚£10.4m ‚£8.8m +18.2% EBIT ‚£0.1m ‚£0.1m -- EBIT margin 1.0% 1.1% -0.1%
We continued to develop our presence in Asia Pacific with revenue ahead by18.2% over the prior year, equivalent to 6.8% growth without any currencybenefit. EBIT was unchanged at ‚£0.1m. All areas of our Asia-Pacific operationsshowed year-on-year revenue growth, with EMM activities performing particularlywell.During the period, we successfully implemented common technology platforms inHong Kong and Singapore which are linked into our regional finance centre inMelbourne and should improve efficiency and process standardisation. Acentralised 24/7 multilingual travel alert unit was established in Melbourne toprovide scope to rationalise our operations across the region. In China weintroduced a pioneering Airplus Charge Card which enables swift re-imbursementof payments made by HRG on behalf of its clients.
Spendvision
The Spendvision results are included in the regional figures. The expense management business continued to grow during the first six months of the financial year, with revenue up by 75% to ‚£4.2m, including 8% from foreign exchange gains, and EBIT up by ‚£0.8m to ‚£0.7m. Spendvision has continued to build its business with new clients and remains an exciting long-term opportunity for the Group.
Outlook
The first half of the financial year has traditionally contributed far less than the second half; last year it represented around one-third of the full year EBIT. We are planning for market conditions to be even more challenging in the second half of our financial year and for the foreseeable future.
We have continued to win more business than we have lost and we will see thebenefit from last year's client wins coming through in the second half. With astrong pipeline and a clear focus on delivering first class service and valueto our clients, we are hopeful that this trend will continue. We do howeverrecognise that client tenders are taking longer than they used to.Our margins have held up well as a result of the actions that we took last yearto restructure our operations and take out costs, and we are continuing toidentify further opportunities to lower operating costs and drive additionalefficiencies.In the prevailing macroeconomic climate, it is very difficult to predict withany certainty the outcome for the second half of our financial year. So far,our underlying client revenue for October and November is expected to be downby about 3% compared to the prior year. Nonetheless, given all that we can seecurrently in terms of workload, combined with the benefit of our cost andefficiency actions, we remain hopeful of finishing the year within currentexpectations.
Additional Financial Disclosures
Foreign currency
The following principal exchange rates have been used in the financialstatements: Income Statement Balance Sheet 2008 2007 Change 2008 2007* Change Euro 1.26 1.47 +17% 1.27 1.25 -2% Swiss franc 2.04 2.42 +19% 2.00 1.97 -2% US dollar 1.92 2.00 +4% 1.78 1.99 +12% Canadian 1.97 2.14 +9% 1.90 2.04 +7%dollar * As at 31 March 2008.Revenue
Revenue grew from ‚£154.4m to ‚£171.0m, an increase of 10.8% over the prior year, comprising 1.0% from organic growth, 0.8% from acquisitions and 9.0% from currency movements.
Operating expenses
Operating expenses grew from ‚£143.7m to ‚£159.7m, an increase of 11.1% primarilydue to the impact of currency movements described above. The average number ofemployees was down slightly.
EBIT
EBIT, which includes HRG's after-tax share of results of associates and jointventures, grew from ‚£10.6m to ‚£11.5m, an increase of 8.5% over the prior yearand including a benefit of ‚£0.9m from favourable currency movements. The EBITmargin for the period was 6.7% compared to 6.9% in the prior year.
Net finance costs
Net finance costs decreased from ‚£5.7m to ‚£5.4m. Costs relating to pension accounting under IAS19 increased by ‚£0.2m and costs relating to external financing decreased by ‚£0.5m.
Taxation
The tax charge of ‚£2.0m for the current year represents an effective rate of33% on profit before tax of ‚£6.1m. The prior year charge of ‚£2.5m on profitbefore tax of ‚£4.9m represents an effective rate of 51%, but includes a one-offcharge of ‚£1.1m relating to the revaluation of deferred tax assets arising fromtax rate reductions in Germany and the UK. Excluding this one-off item theeffective rate was 29% in the prior year.
The effective tax rates reflect the mix of profit arising during the period in each country of operation. We anticipate an effective tax rate for the full year of approximately 30%.
Earnings per share
After taking account of amounts attributable to minority shareholders, earnings per share increased from 0.7p to 1.1p, an increase of 57.1% over the prior year. There was no material change to the weighted average number of shares outstanding.
Funding
The Group has a ‚£220m multi-currency revolving credit facility that iscommitted until September 2011. The rate of interest is based on LIBOR orEURIBOR plus a margin and normal costs incurred by the lender. Covenants aretested at 30 September and 31 March of each year. The facility is used forloans, the issue of letters of credit and guarantees. During the first sixmonths of the financial year, the maximum utilisation was ‚£197m with ‚£177m at30 September 2008.PensionThe Group pension deficit has reduced by ‚£8.9m from ‚£48.1m at 31 March 2008 to‚£39.2m at 30 September 2008, including the UK defined benefit scheme whichreduced by ‚£8.7m, from ‚£38.6m to ‚£29.9m, over the same period. The UK reductionwas primarily the result of an increase in the discount rate from 6.3% to 7.0%,offset by a reduction in the fair value of scheme assets invested in equitiesand an increase in life expectancy assumptions.
Principal risks
Throughout the Group, management regularly review the principal business riskswhich could impact on the achievement of corporate objectives, and themitigation necessary to manage those risks. These risks are strategic,operational and financial and those facing the business in the second half ofthe financial year are considered below. Further discussion of the Group's riskprofile can be found in the Directors' Report section of the Annual Report andFinancial Statements 2008.Unexpected shocks and disasters are always difficult to guard against and theGroup faces risks from the effects of such things as sudden economic change,terrorist activities, natural disasters and health pandemics. The currentglobal economic climate, together with recent confirmation of recessions inEurope and North America will inevitably lead to lower travel activity withsome of the Group's clients. The Group's geographic, client and sectordiversity help to mitigate the effect of any one of these having a materialimpact on the business and it also has in place appropriate recovery plans tominimise the consequences.
The Group continues to pursue new clients as part of its long term growth strategy. There is always a risk that some of the larger contracts in the pipeline do not convert into revenue within the anticipated timeframes. We mitigate this risk by project managing tightly the whole sales process and by working closely with client decision makers.
Within our industry sector, the market for key staff with the appropriateskills remains challenging, both from a recruitment and retention perspective.By investing in training and development programmes and constantly appraisingperformance we aim to mitigate the potential disruptive impacts on thebusiness.
Related parties
Related parties are not considered relevant to understanding the Group's condensed consolidated half-year financial information.
Summary income statement Six months ended 30 September 2008 2007 ‚£m ‚£m Revenue 171.0 154.4 EBITDA(1) 16.7 15.2 Depreciation and amortisation (5.4)
(4.5)
Share of results of associates and 0.2 (0.1)joint ventures EBIT 11.5 10.6 Net finance costs (5.4) (5.7) Profit before tax 6.1 4.9 Taxation (2.0) (2.5) Profit for the period 4.1 2.4 Summary balance sheet 30 September 31 March 2008 2008 ‚£m ‚£m Goodwill and other intangible assets 233.5
231.4
Property, plant and equipment, and 15.0 15.4investments Working capital (51.0) (55.3) Current tax liabilities (6.6) (8.2) Deferred tax assets 26.5 28.8 Net debt (123.0) (110.4) Retirement benefit obligations (39.2) (48.1) Other items (2.3) (3.6) Net assets 52.9 50.0 Summary cash flow statement Six months ended 30 September 2008 2007 ‚£m ‚£m EBITDA 16.7 15.2 Working capital movements (4.4) 0.4 Interest paid (4.3) (5.1) Tax paid (2.9) (3.7) Capital expenditure (3.6) (4.0) Pension funding in excess of EBITDA (3.4) (3.2)charge Other movements (0.8) (0.9) Free cash outflow (2.7) (1.3) Acquisitions and disposals 0.1 (1.3) Dividends paid to external (8.4) --shareholders Net cash outflow (11.0) (2.6) Foreign exchange (1.6) (1.4) (Increase) in net debt (12.6) (4.0)
1. Earnings Before Interest, Taxation, Depreciation and Amortisation.
Hogg Robinson Group plc
Consolidated Income Statement For the period ended 30 September 2008
Notes Half-year ended 30 September 2008 2007 ‚£m ‚£m Revenue 5 171.0 154.4 Operating expenses 6 (159.7) (143.7) Operating profit 5 11.3 10.7 Net share of profits/(losses) of associates and 0.2 (0.1)joint ventures Earnings before interest and taxation 5 11.5 10.6 Finance income 8 0.7 0.6 Finance costs 8 (6.1) (6.3) Profit before tax 6.1 4.9 Income taxes 9 (2.0) (2.5) Profit for the period 4.1 2.4 Attributable to: Equity holders of the parent 10 3.4 2.1 Minority interests 0.7 0.3 Note Half-year ended 30 September 2008 2007 pence pence Earnings per share Basic 10 1.1 0.7 Diluted 1.1 0.7 The notes form an integral part of the consolidated half-yearly financialinformation.Hogg Robinson Group plc Consolidated Balance Sheet As at 30 September 2008 Notes 30 September 31 March 2008 2008 ‚£m ‚£mNon current assets Goodwill and other intangible assets 12 233.5
231.4
Property, plant and equipment 13 12.3
12.6
Investments accounted for using the 2.7
2.8equity method Trade and other receivables 0.4 0.4 Deferred tax assets 29.0 31.6 277.9 278.8 Current assets Trade and other receivables 115.7 123.8
Financial assets - derivative financial 0.2
0.3instruments Current tax assets 1.7 0.4
Cash and cash equivalent assets 14 37.1
49.6 154.7 174.1 Total assets 432.6 452.9 Non current liabilities Financial liabilities - borrowings 14 (148.8) (155.0) Deferred tax liabilities (2.5) (2.8) Retirement benefit obligations 15 (39.2) (48.1) Provisions (3.1) (3.3) (193.6) (209.2) Current liabilities Financial liabilities - borrowings 14 (9.7) (3.1) Current tax liabilities (8.3) (8.6) Financial liabilities - derivative (0.1) (1.3)financial instruments Trade and other payables (167.1) (179.5) Provisions (0.9) (1.2) (186.1) (193.7) Total liabilities (379.7) (402.9) Net assets 52.9 50.0
Capital and reserves attributable to equity
holders Share capital 16 3.1 3.1 Share premium 17 172.1 171.9 Other reserves 17 8.6 5.3 Retained earnings 17 (133.9) (132.8) 49.9 47.5 Minority interests 3.0 2.5 Total equity 52.9 50.0
The notes form an integral part of the consolidated half-yearly financial information.
Consolidated Cash Flow Statement For the period ended 30 September 2008
Note Half-year ended 30 September 2008 2007 restated ‚£m ‚£m
Cash flows from operating activities Cash generated from operations 18 9.2
12.6 Interest paid (5.1) (5.8) Tax paid (2.9) (3.7)
Cash flows from operating activities - 1.2
3.1net
Cash flows from investing activities Acquisition of subsidiaries, net of (0.3) (2.0) cash acquired Disposals of associates, joint 0.4
0.7
ventures and other Investments Purchase of property, plant and (1.6) (2.3) equipment Purchase of intangible assets (2.0)
(1.7) Interest received 0.7 0.6 Dividends received from associates 0.1 0.1 Cash flows from investing activities - (2.7) (4.6)net
Cash flows from financing activities
Repayment of borrowings (17.0) (34.6) New borrowings 8.6 26.1
Cash effect of currency swaps (0.7)
(0.2) Dividends paid to external (8.4) - shareholders Dividends paid to minority (0.2) (0.8) shareholders Cash flows from financing activities - (17.7) (9.5)net Net decrease in cash, cash equivalents (19.2) (11.0)and bank overdrafts Half-year ended 30 September 2008 2007 restated ‚£m ‚£m Net decrease in cash, cash equivalents and bank (19.2) (11.0)overdrafts
Cash and cash equivalents at the beginning of the 48.5
60.1period Exchange rate 0.1 1.2effects
Cash and cash equivalents at the end of the period 29.4
50.3
Cash and cash equivalent assets 37.1
54.8 Overdrafts (7.7) (4.5) 29.4 50.3
Net decrease in cash, cash equivalents and bank overdrafts for the period ended 30 September 2007 has been restated to reflect reclassification of foreign exchange movements and the cash effect of currency swaps between cash flows from operating activities, cash flows from financing activities and the reconciliation between opening and closing cash, cash equivalents and bank overdrafts to more fairly reflect cash flows from operating activities.
The notes form an integral part of the consolidated half-yearly financialinformation.Hogg Robinson Group plc
Consolidated Statement of Recognised Income and Expense
For the period ended 30 September 2008 Half-year ended 30 September 2008 2007 ‚£m ‚£m Profit for the period 4.1 2.4
Income and expense recognised directly in
equity
Currency translation differences 17 2.7
(3.4) Actuarial gain 17 5.7 22.2 Reduction in deferred tax asset on pension 17 (1.6) (6.2) liability Reduction in deferred tax asset recognised on -
(1.6)
the pension liability attributable to tax rate changes 6.8 11.0 Total recognised income and expense 10.9 13.4 Attributable to:
Equity holders of the parent 10.2
13.1 Minority interests 0.7 0.3
The notes form an integral part of the consolidated half-yearly financial information.
Hogg Robinson Group plc
Notes to the condensed consolidated half-yearly financial information
For the period ended 30 September 2008
1 General information
The Company is a public limited company, incorporated in the UK under the Companies Act 1985. The address of its registered office is Global House, Victoria Street, Basingstoke, Hampshire, RG21 3BT, United Kingdom.
The Company is listed on the Official List of the UK Listing Authority and the London Stock Exchange.
This condensed consolidated half-yearly financial information was approved for issue on 27 November 2008.
This condensed consolidated half-yearly financial information does not comprisestatutory accounts within the meaning of Section 240 of the Companies Act 1985.Statutory accounts for the year ended 31 March 2008 were approved by the Boardof Directors on 3 June 2008 and delivered to the Registrar of Companies. Thereport of the auditors on those accounts was unqualified, did not contain anemphasis of matter paragraph and did not contain any statement under Section237 of the Companies Act 1985.
This condensed consolidated half-yearly financial information has been reviewed, not audited.
2 Basis of preparation
This condensed consolidated half-yearly financial information for the half-yearended 30 September 2008 has been prepared in accordance with the Disclosure andTransparency Rules of the Financial Services Authority and with IAS 34, Interimfinancial reporting, as adopted by the European Union. The half-yearlycondensed consolidated financial report should be read in conjunction with theAnnual Consolidated Financial Statements for the year ended 31 March 2008,which have been prepared in accordance with International Financial ReportingStandards (IFRSs) as adopted by the European Union.
3 Accounting policies
The accounting policies adopted are consistent with those of the Annual Consolidated Financial Statements for the year ended 31 March 2008, as described in those statements.
The following new standards, amendments to standards and interpretations to existing standards are mandatory for the first time for the financial year beginning 1 April 2008, but are currently not relevant for the Group:
* IFRIC 12, Service Concession Arrangements.
* IFRIC 14, IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction. This interpretation provides guidance
on assessing the limit in IAS 19 on the amount of the surplus that can be
recognised as an asset. It also explains how the pension asset or liability
may be affected by a statutory or contractual minimum funding requirement.
IFRIC 14 does not currently have any impact on the results of the Group.
The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 April 2008 and have not been early adopted:
* IAS 23 (Amendment), Borrowing Costs, effective from 1 January 2009. The
Group will apply IAS 23 (Amended) from 1 April 2009, subject to EU
endorsement, but it is currently not applicable to the Group as there are
no qualifying assets.
* IAS 27 (Revised), Consolidated and Separate Financial Statements, effective
from 1 July 2009, subject to EU endorsement. The impact of adopting this
standard in future periods is under assessment. * IFRS 3 (Revised), Business Combinations, applicable to business combinations effected from 1 January 2010 with earlier application
permitted, subject to EU endorsement. The impact of adopting this standard
in future periods will be considered in the event of a future business
combination.
* IFRS 8, Operating Segments, effective for annual periods beginning on or
after 1 January 2009. The Group expects to apply IFRS 8 from 1 April 2009.
The Directors anticipate that the adoption of the following amendments tostandards and interpretations in future periods, which were also in issue butnot yet effective at the date of authorisation of this condensed consolidatedhalf-yearly financial information, will have no material impact on the resultsof the Group:
* IAS 1 (Amendment), Presentation of Financial Statements, effective from 1
January 2009, subject to EU endorsement.
* IAS 32 (Amendment), Financial Instruments Presentation, and consequential
amendments to IAS 1, Presentation of Financial Statements, effective from 1
January 2009, subject to EU endorsement.
* IFRS 2 (Amendment), Share-based Payment - Vesting Conditions and
Cancellations, effective from 1 January 2009, subject to EU endorsement.
* IFRIC 13, Customer Loyalty Programmes, effective for annual periods
beginning on or after 1 July 2008.
4 Seasonality
The Group's revenue and operating profit are affected by the seasonality ofcorporate travel business, with travel declining during the summer andChristmas holiday periods and, to a lesser extent, during Easter holidays,which are times when many corporate travellers are on holiday. Typically, theGroup experiences the highest levels of revenue in the last quarter of itsfinancial year, principally reflecting increased travel activity by its clientsduring this period and recognition of revenue due to the finalisation ofamounts due in connection with the annual review of supplier contracts.
5 Revenue and operating profit
Business segmentation
All revenue, operating profit for the half-year, assets and liabilities, capital expenditure, depreciation and amortisation from continuing operations are derived from one primary segment, Business Travel.
Geographical segmentation
Segment information is provided for regions reflecting the principal economic environment in which the Group operates.
External revenue from clients by origin (where the Group is located)
Half-year ended 30 September 2008 2007 restated ‚£m ‚£m Europe 128.1 114.4 North America 32.5 31.2 AsPac 10.4 8.8 171.0 154.4
External revenue from clients by geographical area (where the client is located) is not significantly different from external revenue from clients by origin (where the Group is located) disclosed above.
Operating profit Half-year ended 30 September 2008 2007 restated ‚£m ‚£m Europe 11.4 11.0 North America (0.1) (0.5) AsPac - 0.2 11.3 10.7
Earnings before interest and taxation
Half-year ended 30 September 2008 2007 restated ‚£m ‚£m Europe 11.5 11.0 North America (0.1) (0.5) AsPac 0.1 0.1 11.5 10.6 External revenue and operating profit have been restated in the half-year ended30 September 2007 to reflect the reclassification of central revenue and costsamong the three geographical segments.
AsPac refers to the Asia Pacific region.
6 Operating expenses Half-year ended 30 September 2008 2007 ‚£m ‚£m Staff costs (note 7) 103.7 94.1
Amortisation of client relationships 1.6 1.4 Amortisation of other intangible assets 1.5 1.1 Depreciation of property, plant and equipment 2.3 2.0 Operating lease rentals - buildings 7.1 6.3 Operating lease rentals - other assets 0.9 1.1
Other expenses 42.6 37.7 159.7 143.7
Operating expenses are affected by changes in foreign exchange rates.
7 Staff costs Half-year ended 30 September 2008 2007 ‚£m ‚£m Salaries 86.0 78.7 Social security costs 10.6 9.0 Pension costs 5.1 5.0 Redundancy and termination costs 1.4 1.1 Share-based incentives 0.6 0.3 103.7 94.1 Pension costs comprise: Defined benefit schemes 1.8 2.0
Defined contribution schemes 3.3
3.0 5.1 5.0 Half-year ended 30 September 2008 2007 number number Average number of staff: Business Travel 6,372 6,415 8 Finance income and finance costs Half-year ended 30 September 2008 2007 ‚£m ‚£m Finance income 0.7 0.6 Interest on bank overdrafts and loans (5.3)
(5.6)
Amortisation of issue costs on bank loans (0.3)
(0.2)
Expected return on pension scheme assets less interest cost on pension scheme liabilities (0.5)
(0.3) Interest rate caps - (0.1) Other finance charges - (0.1) Finance costs (6.1) (6.3) Net finance costs (5.4) (5.7) 9 Taxation
The tax charge is split as follows:
Half-year ended 30 September 2008 2007 ‚£m ‚£m United Kingdom 1.0 0.9 Overseas 1.0 0.5 Tax rate changes (non-recurring) - 1.1 2.0 2.5
Taxes on income in the half-year periods are accrued using the tax rate that would be applicable to expected total annual earnings by country.
Adjustments to goodwill on recognition of tax assets
The Group has acquired businesses with tax losses and other deferred tax assets. In previous periods, deferred tax on losses which were not recognised on acquisition were recognised as an exceptional adjustment to goodwill in accordance with IFRS 3, Business Combinations.
Tax rate changes (non-recurring)
Corporation tax rate reductions in Germany and the UK have led to a one-off reduction in the value of recognised deferred tax assets in these jurisdictions that were booked in the six months to 30 September 2007.
10 Earnings per share
Earnings per share attributable to equity holders of the company were asfollows: Half-year ended 30 September 2008 2007 ‚£m ‚£m
Earnings for the purposes of earnings per share
Profit for the period 4.1 2.4 Less: amount attributable to minority interests (0.7) (0.3) Total 3.4 2.1 Half-year ended 30 September 2008 2007 number number m m
Weighted average number of Ordinary shares in issue
Issued (for basic EPS) 303.9 305.6 Dilutive potential ordinary shares 2.4 1.1 For diluted EPS 306.3 306.7 11 Dividends
A dividend that related to the year to 31 March 2008 and amounted to 2.8p per ordinary share ‚£8.6m was paid on 1 August 2008. The dividend was paid to shareholders who were on the register at 4 July 2008.
Scrip dividends to the value of ‚£0.2m in respect of the dividend for the year ended 31 March 2008 were taken instead of cash payment.
In addition, the Directors propose an interim dividend in respect of the sixmonths ended 30 September 2008 of 1.2p payable on 06 January 2009 toshareholders who will be on the register at 05 December 2008. This interimdividend, amounting to ‚£3.7m has not been recognised as a liability in thishalf-yearly financial report, in accordance with IAS 10, Events after theBalance Sheet Date.
12 Goodwill and other intangible assets
30 September 31 March 2008 2008 ‚£m ‚£m Goodwill 206.0 203.1 Other intangible assets 27.5 28.3 233.5 231.4 Goodwill 30 September 31 March 2008 2008 ‚£m ‚£m At cost At beginning of period 229.5 217.8 Acquisitions - 2.5
Adjustments to goodwill on recognition of tax - (0.9) assets Adjustments to deferred consideration (0.2) - Exchange differences 3.1 10.1 At end of period 232.4 229.5
Accumulated impairment losses
At beginning of period 26.4 26.4 At end of period 26.4 26.4 Carrying amount 206.0 203.1 Other intangible assets Computer software Client Total Externally Internally relationships acquired generated ‚£m ‚£m ‚£m ‚£m At cost At 1 April 2007 13.9 4.6 27.4 45.9 Additions for the year 1.4 1.5 - 2.9 Exchange differences 0.9 - 4.0 4.9 At 31 March 2008 16.2 6.1 31.4 53.7 Additions for the period 0.4 1.5 - 1.9 Exchange differences (0.1) - 0.3 0.2 At 30 September 2008 16.5 7.6 31.7 55.8
Accumulated amortisation and impairment
At 1 April 2007 8.0 2.0 7.5 17.5 Amortisation charge for 1.6 1.0 2.8 5.4 the year Exchange differences 0.9 - 1.6 2.5 At 31 March 2008 10.5 3.0 11.9 25.4 Amortisation charge for 0.9 0.6 1.6 3.1 the period Exchange differences (0.2) - - (0.2) At 30 September 2008 11.2 3.6 13.5 28.3 Carrying amount At 1 April 2007 5.9 2.6 19.9 28.4 At 31 March 2008 5.7 3.1 19.5 28.3 At 30 September 2008 5.3 4.0 18.2 27.5 13 Property, plant and equipment IT and Properties Total office equipment ‚£m ‚£m ‚£m At cost At 1 April 2007 38.2 8.8 47.0 Additions for the year 4.2 1.2 5.4 Disposals for the year (8.8) (0.9) (9.7) Exchange differences 5.3 0.2 5.5 At 31 March 2008 38.9 9.3 48.2 Additions for the period 1.7 0.1 1.8 Exchange differences 0.1 0.4 0.5 At 30 September 2008 40.7 9.8 50.5 Accumulated depreciation At 1 April 2007 31.1 5.1 36.2
Depreciation charge for the year 3.5 0.9
4.4 Disposals for the year (8.3) (0.9) (9.2) Exchange differences 4.1 0.1 4.2 At 31 March 2008 30.4 5.2 35.6
Depreciation charge for the period 1.8 0.5
2.3 Exchange differences 0.1 0.2 0.3 At 30 September 2008 32.3 5.9 38.2 Carrying amount At 1 April 2007 7.1 3.7 10.8 At 31 March 2008 8.5 4.1 12.6 At 30 September 2008 8.4 3.9 12.3 14 Financial liabilities - borrowings 30 September 31 March 2008 2008 ‚£m ‚£m At amortised cost
Current (due within one year)
Overdrafts 7.7 1.1 Bank loans 1.8 1.9 Finance leases 0.2 0.1 Total current 9.7 3.1
Non-current (due after more than one year)
Bank loans 148.4 154.7 Finance leases 0.4 0.3 Total non-current 148.8 155.0 Total 158.5 158.1 Net debt Total financial liabilities 158.5 158.1 Add back: unamortised loan issue costs 1.6
1.9
Cash and cash equivalent assets (37.1) (49.6) Net debt 123.0 110.4
15 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 Retail PriceIndex and 5% per annum.
The Group also operates defined benefit schemes in Norway, Switzerland, Germany and Italy which are materially insignificant.
The amounts recognised on the Consolidated Balance Sheet are determined asfollows: 30 September 31 March 2008 2008 ‚£m ‚£m UK scheme: Defined benefit obligations (214.2) (235.4) Fair value of plan assets 184.3 196.8 Deficit - UK Scheme (29.9) (38.6) Deficit - Other Schemes (9.3) (9.5) (39.2) (48.1) The movement in the net pension obligations was a reduction of ‚£8.9m comparedwith the position at 31 March 2008. This was primarily the result of anincrease in the discount rate applied in the updated actuarial valuations at 30September 2008 resulting in a reduction in liabilities of ‚£33.8m offset by areduction in the fair value of those scheme assets invested in equities for theUK Scheme of ‚£20.1m and a change in mortality assumptions of ‚£8.2m.The amounts recognised in the Consolidated Income Statement in respect of theUK Scheme are as follows: Half-year ended 30 September 2008 2007 ‚£m ‚£m Current service cost 1.1 1.4 Expected return on scheme assets (6.9) (6.2) Interest cost 7.4 6.5
Total charge to the Consolidated Income Statement 1.6
1.7 16 Share capital 30 September 2008 number Authorised Ordinary shares of 1p each 513,808,171 Issued and fully paid At 1 April 2008 306,833,065 Shares issued in lieu of cash 409,138dividends At 30 September 307,242,203 30 September 2008 ‚£m Issued and fully paid
Ordinary shares of 1p each at 1
3.1April 2008
Shares issued in lieu of cash
-dividends 3.1 17 Reserves Share Other Retained premium reserves earnings ‚£m ‚£m ‚£m At 1 April 2007 171.3 1.3 (137.6) Retained profit - - 2.4 Minority interests - - (0.3) Dividends paid - - (8.6) Share-based incentives - 0.3 - Actuarial gain - - 22.2 Deferred tax movement on pension - - (7.8)liability
Currency translation differences - (3.4)
- At 30 September 2007 171.3 (1.8) (129.7) At 1 April 2007 171.3 1.3 (137.6) Retained profit - - 17.5 Minority interests - - (0.8) Dividends paid - - (12.2)
Scrip dividend issued in lieu of 0.6 -
-dividend Treasury shares purchased - - (1.6) Share-based incentives - 0.7 - Actuarial gain - - 5.1 Deferred tax movement on pension - - (3.2)liability
Currency translation differences - 3.3
- At 31 March 2008 171.9 5.3 (132.8) At 1 April 2008 171.9 5.3 (132.8) Retained profit - - 4.1 Minority interests - - (0.7) Dividends paid - - (8.6)
Scrip dividend issued in lieu of 0.2 -
-dividend Share-based incentives - 0.6 - Actuarial gain - - 5.7 Deferred tax movement on pension - - (1.6)liability
Currency translation differences - 2.7 - At 30 September 2008 172.1 8.6 (133.9) 18 Cash generated from operations Half-year ended 30 September 2008 2007 ‚£m ‚£m Profit before tax 6.1 4.9 Adjustments for:
Depreciation, amortisation and impairment 5.4
4.5 Net increase in provisions 1.5 1.2
Share of results of associates and joint ventures (0.2)
0.1 Net finance costs 5.4 5.7 Other timing differences 0.6 0.2 18.8 16.6 Cash expenditure charged to provisions (1.8)
(1.2)
Change in trade and other receivables 8.4
(2.9)
Change in trade and other payables (12.8)
3.3
Pension funding in excess of charge to operating (3.4) (3.2)profit
Cash generated from operations 9.2
12.6
19 Related party transactionsThere have been no material changes in related party disclosures since 31 March2008, see note 30 in the Group's 31 March 2008 Annual Report and ConsolidatedFinancial Statements.
20 Contingent assets and contingent liabilities
No change has taken place in the contingent assets and contingent liabilities as reported in the Group's 31 March 2008 Annual Report and Consolidated Financial Statements.
Hogg Robinson Group plc
Statement of Directors' responsibilities
The Directors confirm that this condensed consolidated half-yearly financialinformation has been prepared in accordance with IAS 34 as adopted by theEuropean Union and that the Interim Management Report herein includes a fairreview of the information required by DTR 4.2.7 and DTR 4.2.8, namely:
* an indication of important events that have occurred during the first six
months and their impact on the condensed set of financial statements, and a
description of the principal risks and uncertainties for the remaining six
months of the financial year; and
* material related-party transactions in the first six months and any
material changes in the related-party transactions described in the last
annual report.
The Directors of Hogg Robinson Group plc are listed in the Hogg Robinson Group plc Annual Report for 31 March 2008.
By order of the BoardKeith BurgessCompany Secretary27 November 2008Hogg Robinson Group plc
Independent review report to Hogg Robinson Group plc
Introduction
We have been engaged by the Company to review the condensed set of ConsolidatedFinancial Statements in the half-yearly financial report for the six monthsended 30 September 2008, which comprises the Consolidated Income Statement,Consolidated Balance Sheet, Consolidated Statement of Recognised Income andExpense, Consolidated Cash Flow Statement and related notes. We have read theother information contained in the half-yearly financial report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe information in the condensed set of Consolidated Financial Statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As described in note 2, the annual financial statements of the Group areprepared in accordance with IFRSs as adopted by the European Union. Thecondensed set of Consolidated Financial Statements included in this half-yearlyfinancial report has been prepared in accordance with International AccountingStandard 34, `Interim Financial Reporting', as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Group a conclusion on the condensed setof Consolidated Financial Statements in the half-yearly financial report basedon our review. This report, including the conclusion, has been prepared for andonly for the Group for the purpose of the Disclosure and Transparency Rules ofthe Financial Services Authority and for no other purpose. We do not, inproducing this report, accept or assume responsibility for any other purpose orto any other person to whom this report is shown or into whose hands it maycome save where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, `Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity', issued by the AuditingPractices Board for use in the United Kingdom. A review of the interimfinancial information consists of making enquiries, primarily of personsresponsible for financial and accounting matters, and applying analytical andother review procedures. A review is substantially less in scope than an auditconducted in accordance with International Standards on Auditing (UK andIreland) and consequently does not enable us to obtain assurance that we wouldbecome aware of all significant matters that might be identified in an audit.Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of Consolidated Financial Statements in the half-yearly financial report for the six months to 30 September 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
PricewaterhouseCoopers LLPChartered Accountants and Registered AuditorsLondon27 November 2008Notes:(a) The maintenance and integrity of the Hogg Robinson Group plc web site isthe responsibility of the Directors; the work carried out by the auditors doesnot involve consideration of these matters and, accordingly, the auditorsaccept no responsibility for any changes that may have occurred to thehalf-yearly financial report since it was initially presented on the web site.
(b) Legislation in the United Kingdom governing the preparation and dissemination of the financial information may differ from legislation in other jurisdictions.
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Hogg Robinson Group