12th Dec 2006 07:02
Hogg Robinson Group PLC12 December 2006 Hogg Robinson Group plc* Interim Results for the six months ended 30 September 2006 A good first half performance. Interim Highlights • First half year in line with management expectations • Revenue up 7.3% to £149.2m (H1 05/06: £139.1m) • EBITA+ up 28.2% to £15.1m (H1 05/06: £11.8m), including contribution from FIFA World Cup activity • Improved performance in all regions driven by significant contract wins, high client retention, addition of new services and improved operational efficiency • Successful completion of planned acquisitions including majority holding in 'Spendvision' • Successfully admitted to the Main Market of the London Stock Exchange on 12 October 2006 David Radcliffe, Chief Executive of Hogg Robinson Group plc, said: "HRG had a good first half underpinned by a contribution from the FIFA World Cupactivity. Although, following enhanced security measures we witnessed a modestslowdown in demand for corporate travel in certain markets, we believe this willprove to have been temporary. We remain on track for the full year." Contact Details Hogg Robinson Group +44 (0) 1256 312 600David Radcliffe +44 (0) 1256 312 602John Kennerley +44 (0) 1256 312 610Jacqui Higgs +44 (0) 1256 312 622 Bell Pottinger Corporate & Financial +44 (0) 20 7861 3232David Rydell +44 (0) 20 7861 3886Nick Lambert +44 (0) 20 7861 3936Andrew Benbow +44 (0) 20 7861 3865 A presentation for analysts will be held at 8.30am for 9.00am today at theMerrill Lynch Financial Centre, 2 King Edward Street, London EC1A 1HQ. Copiesof the presentation with simultaneous, live, audio commentary from HRG'spresentation team will be available at http://investors.hoggrobinson.com/hrg/ir/rp/res/. An audio replay will be available at the same URL from 12pm. *"Hogg Robinson Group" or "HRG" or "the Company" or "the Group" +EBITA is defined on Page 6 below Chairman's Statement We are pleased with the first half year results, which demonstrate Hogg RobinsonGroup's commitment to its strategy. I am delighted to welcome to the Board TonyIsaac, previously CEO of BOC, and George Battersby, Human Resources Director ofCable and Wireless, who bring further experience and additional skills to thenewly formed Board of Hogg Robinson Group. I am pleased that the IPO process has been completed and that we are a listedcompany again, which the Directors believe will be beneficial to the long-termprogress of the Company. The management is fully focused on driving forward ourstated strategy and in delivering value and a superior service to our clients. Chief Executive's Review Hogg Robinson Group experienced a good first half to the year, with revenue up7.3% to £149.2m compared with £139.1m in the same period last year. EBITA was up28.2% to £15.1m (H1 05/06: £11.8m). All operating regions showed an increase inrevenues and an improvement in EBITA compared with the same six month periodlast year. Revenue H1 06/07 H1 05/06 Change £m £m %Europe 110.7 109.6 +0.9%North America 26.8 20.1 +33.8%AsPac 6.0 5.7 +4.9%Central 5.7 3.7 +54.8% 149.2 139.1 +7.3% EBITA H1 06/07 H1 05/06 Change £m £m %Europe 19.9 17.7 +12.8%North America 2.0 1.3 +47.3%AsPac 0.3 (0.5) -Central (7.1) (6.7) - 15.1 11.8 +28.2% Business Overview HRG provides corporate services primarily linked to business travel, events andexpense management. Its target market is mainly aimed at the large corporates.We have our own operations in 24 countries, located predominantly wherecorporate decision makers are based, and contracted partners in a further 72countries bringing the total reach for the HRG worldwide network to 96countries. The activity for the first six months of the financial year has included: • Continued focus on high client retention together with recent new business wins in a competitive market • One-off benefit from FIFA World Cup • Opportunities generated by the new integrated Events Management business both through local opportunities and the growth in managed programmes • Operational efficiencies led by integrated processes supported by our technology platforms • Increased activities surrounding enhanced global security procedures The expertise of our people is an essential part of our value proposition toclients. We have a programme across all regions to provide our teams with theright knowledge, technology and support to enable us to deliver an extendedrange of value enhancing services. Client Activity Whilst client retention remains in excess of 90%, regrettably, we did experiencesome client losses. However, I am pleased to report that these losses areoutweighed by the additional business achieved through a mix of new businesscontracts, existing client service reviews and current contract extensionsacross all regions. As announced at the time of the IPO, the global win of Credit Suisse wasachieved against considerable major competitor activity. The account commencedtrading with us this month. In Europe, in the last few months, we have won more than 20 significantcontracts, including high profile names such as Tesco plc, QinetiQ plc, Bunzlplc, Inmarsat plc, Giorgio Armani, Sandvik and Ernst & Young. In addition, itwas announced on 6th December that HRG had won an extension, until 2012, of theGerman Football League contract. In AsPac (Asia Pacific), HRG Australia recently announced contract winsincluding the provision of travel management services to the Federal Senatorsand Members of Parliament for the Australian Department of Finance andAdministration, represented by the Ministerial and Parliamentary Services Group. We have made good progress, across all regions, in the continuous development ofour value added offerings and in our campaign to increase the demand for ourEvents & Meetings Management, Expense Management and Consulting services. To aidthis process further, we have recently restructured our sales and businessmanagement functions in order to seek to gain maximum benefit from bestpractice. Regions Europe: The UK continues to perform strongly. European markets have also continued to berobust, with the FIFA World Cup contract a driver of the region's improvedperformance. The tournament was a major project across the Company and providesa platform on which to build further our sports related business. The process of implementing operational efficiencies has included the continuedroll out of regional service centres. The lower cost service centre in Europe(Budapest) is now operational and has been added to the existing network. The management structures have been reviewed and, where appropriate,strengthened with new appointments. The teams are targeted to capitalise onservice efficiencies and new business opportunities. North America: Our businesses in Canada and the USA (Seagate and Robustelli) are beingintegrated into one North American operation which has been successfullyrebranded as "HRG North America". HRG has a strong market presence in managedtravel within North America, over 1,500 employees and gross sales of around £1bnper annum. Similar to Europe, operational efficiencies are being put in place together withthe roll out of the regional service centres, including the establishment of thelower cost service centre in Halifax, Nova Scotia. Since announcing its new strategy early in 2006, HRG has been growing its clientfacing team in North America and has increased marketing activities there. Theresult has seen an acceleration in new business opportunities with approximately40 invitations to bid received during the first half of the year. Our operationsin New York and Charlotte, North Carolina are being scaled up and relocatedrespectively to larger and more efficient offices capable of handling theexpected increase in volumes. AsPac: As part of our ongoing efficiency programme, our AsPac region has beenrestructured. In Australia, we have realigned our approach to the market andincreased productivity through the introduction of new back and mid officesystems, the success of which has been demonstrated in the number of highprofile new business wins, including government contracts. This approach will beadopted throughout the AsPac region during 2007. Established just over two years ago, our Chinese company is increasinglyrecognised as a major operator in its field. Through our joint venture with JinJiang International, considered to be one of China's leading hotel and groundoperators, we have been successfully building volume and winning business fromour competitors. Singapore and Hong Kong are also showing good growth with strong new businesspipelines. Central: Central includes revenues from global marketing agreements and distribution andsystem usage agreements with suppliers. It also bears the costs and expensesassociated with technology development and support and Group functions, such asfinance, human resources, legal and marketing. Revenue rose from £3.7m in H1 05/06 to £5.7m in H1 06/07, whilst costs increasedfrom £10.4m to £12.8m in the same periods. The EBITA net expenditure increasedfrom £6.7m to £7.1m. Technology Technology will continue to be a driving force in delivering our services. The'HRG Intellect' range of solutions continues to prove successful with clients inproviding travel solutions that deliver clear benefits to users at each stage ofthe travel process. We continue to develop our new technology infrastructure which allows us toaccess content relating to the client's trip and to manage the integration oftravel and expense management requirements. Modules already rolled out are providing value to the clients and the Company indelivering enhanced services to clients' and our own operational teams. Theenhanced online data and analysis, including security reporting, providessubstantial value in managing a corporate travel programme. Acquisitions As disclosed at the time of the IPO, we have completed the strategic acquisitionof a further stake in Spendvision and we now have a majority 51% holding. Thisprovides the basis for extending our range of technology and services to includefull expense management, payment services and data management opportunities. The acquisitions in Poland, Czech Republic, Slovakia, and the UK are beingsuccessfully integrated. Acquisitions remain a key element of our strategy andthere are a number of opportunities being explored. Outlook HRG had a good first half underpinned by a contribution from the FIFA World Cupactivity. Although, following enhanced security measures we witnessed a modestslowdown in demand for corporate travel in certain markets, we believe this willprove to have been temporary. We remain on track for the full year. This announcement may contain forward-looking statements with respect to certainof the plans and current goals and expectations relating to the future financialconditions, business performance and results of Hogg Robinson Group. By theirnature, all forward-looking statements involve risk and uncertainty because theyrelate to future events and circumstances that are beyond the control of HRG,including amongst other things, HRG's future profitability, competition with themarkets in which the Company operates and its ability to retain existing clientsand win new clients, changes in economic conditions generally or in the traveland airline sectors, terrorist and geopolitical events, legislative andregulatory changes, the ability of its owned and licensed technology to continueto service developing demands, changes in taxation regimes, exchange ratefluctuations, and volatility in the Company's share price. As a result, HRG'sactual future financial condition, business performance and results may differmaterially from the plans, goals and expectations expressed or implied in theseforward-looking statements. HRG undertakes no obligation to publicly update orrevise forward-looking statements, except as may be required by applicable lawand regulation (including the Listing Rules). No statement in this announcementis intended to be a profit forecast or be relied upon as a guide to futureperformance. Financial Review Financial Summary H1 H1 Year ended 2006/07 2005/06 31 March 2006 (£m) (£m) (£m)Gross sales 1,784.0 1,529.6 3,254.1 =====================================Revenue 149.2 139.1 297.2 EBITDA (2) 17.4 13.8 44.2 -------------------------------------Depreciation (2.3) (2.0) (3.8) -------------------------------------EBITA(1) 15.1 11.8 40.4Amortisation of intangible assets (2.1) (1.9) (4.0)Exceptional pension items 4.5 - 7.0Adjustment to goodwill(3) (0.5) (1.9) (3.9)Net finance costs (16.7) (20.9) (37.4) -------------------------------------Profit / (loss) before tax 0.3 (12.9) 2.1Income taxes (0.9) 0.5 (0.8) -------------------------------------(Loss) / profit before tax from continuing operations (0.6) (12.4) 1.3Profit / (loss) from discontinued operations 4.8 (8.3) (8.0) -------------------------------------Profit / (loss) for the period 4.2 (20.7) (6.7) ===================================== Notes: (1) EBITA: Earnings before interest, taxation and amortisation is calculated asoperating profit including share of associates and joint ventures but before netfinance costs, taxation, amortisation, impairment, exceptional pension items andadjustment to goodwill on recognition of tax assets. (2) EBITDA: Earnings before interest, taxation, depreciation and amortisation iscalculated on the same basis as EBITA and excludes depreciation. (3) On recognition of tax assets. In order to comply with IAS12, Income Taxes, acharge is reported in operating expenses when the Company is able to use taxlosses and other assets to a greater extent than expected at the acquisitiondate. These figures relate to a period when HRG was privately owned and capitalisedlargely with debt. Pro forma figures, reflecting the impact of the IPO, areshown on Page 8. Revenue Revenue for the six months to 30 September 2006 has increased by £10.1m, being7.3% compared with the equivalent period in the prior year. Growth occurred inall regions with North America achieving the most significant percentageincrease, and revenue in Europe was impacted beneficially by the FIFA World Cup.Revenue increases reflect organic growth and the acquisition strategy, whichadded £2.9m compared with the prior year. Revenue in Central has shown growth of £2.0m due to increased distribution andsystems income and the inclusion of Spendvision as a subsidiary. EBITA EBITA for the six months to 30 September 2006 has increased by £3.3m, from£11.8m to £15.1m being 28.2%, compared with the equivalent period in the prioryear. The increase reflects revenue growth and improved cost management in eachregion. Acquisitions added £0.5m to EBITA compared with the equivalent period inthe prior year. Changes in foreign exchange rates had an insignificant impact onthe translation of EBITA by comparison with prior periods. Within EBITA, depreciation increased by £0.3m compared with the equivalentperiod in the prior year. Amortisation of Intangible Assets Amortisation of intangible assets has increased by £0.2m, from £1.9m to £2.1m,compared with the equivalent period in the prior year. This reflects accumulatedamortisation of technology assets and of client relationships for acquiredbusinesses. Exceptional Pension Credits Exceptional pension credits for six months to 30 September 2006 amounted to£4.5m. Of this total, £3.9m is the actuarial gain on the settlement ofliabilities to deferred pensioners in the UK pension scheme. A further gain of£0.6m arose on the settlement of pension liabilities in Norway. Net Finance Costs Net finance costs have decreased by £4.2m compared with the equivalent period inthe prior year, from £20.9m to £16.7m, which arose predominantly due torepayment of loans following the disposal of the Benefits and ConsultingServices division in July 2005. The level of net finance costs reflects thecapital structure of the Company before the IPO in October 2006. Taxation The tax charge for the six months to 30 September 2006, £0.9m, reflects the mixof results by country in the period leading up to the IPO and in particular theprofits generated in Germany. Dividend The six months under review concluded prior to admission of the Company's sharesto the Main Market of the London Stock Exchange, therefore, the Board is notintending to pay an interim dividend. It is the intention to declare a finaldividend based on the outturn for the second half of the year. Discontinued Operations Profits from discontinued operations in the six months to 30 September 2006amounted to £4.8m. This included a gain of £4.7m following receipt of additionalcontingent disposal proceeds in respect of the sale of the Benefits andConsulting Services division. Net Debt and Cash Flow The movement in net debt was an outflow of £41.9m compared with the position asat 31 March 2006. Cash flows from continuing operating activities (beforeinterest, tax, exceptional items, exchange rate movements, investing andfinancing activities) were £17.7m compared with £13.9m in the same period in theprior year. The first half of the year has been impacted by additional pensionpayments and a negative movement in working capital, which is largely expectedto reverse in the second half of the year. Pro Forma Financial Information The interim results for the six months ended 30 September 2006 have beenpresented on the basis of the financial structure in place before the completionof the IPO on 12 October 2006. Details of the IPO and related matters are setout in Note 13 to the Interim Financial Statements. The Pro forma Balance Sheetwhich follows sets out the balance sheet as at 30 September 2006 as adjusted forthe IPO: At 30 September Net IPO Pension Pro 2006 (actual) receipts payments forma £m £m £m £m Non current assets 273.4 - - 273.4Working capital and long term creditors (46.6) - - (46.6)Net debt (268.1) 158.1 (28.5) (138.5)Retirement benefit obligations (103.2) - 29.6 (73.6) ---------------------------------------------Shareholder's funds (144.5) 158.1 1.1 14.7 ============================================= Based on a Pro forma net finance cost of £9.2m per annum following the IPO,profit and earnings per share for the six months ended 30 September 2006 wouldhave been reported as follows: Actual Adjustments Pro forma £m £m £m Profit before interest and tax 17.0 - 17.0Net finance costs (16.7) 12.1 (4.6) --------------------------------- Profit before tax 0.3 12.1 12.4Income taxes (0.9) (2.3) (3.2)Minority interest (1.1) - (1.1) --------------------------------- Earnings from continuing operations (1.7) 9.8 8.1Earnings from discontinued operations 4.8 - 4.8 --------------------------------- 3.1 9.8 12.9 ================================= Shares in issue following the m 305.6IPO Earnings per share, continuing operations pence 2.6Earnings per share, discontinued operations pence 1.6 ================= pence 4.2 ================= Interim Financial Statements for the Six Months to 30th September 2006Consolidated Income Statement Notes Six months ended Year ended 30 September 31 March 2006 2005 2006 (unaudited) (unaudited) (audited) £000s £000s £000sContinuing operationsRevenue - rendering of services 3 149,195 139,078 297,228Operating expenses 4 (132,440) (130,977) (257,919) ------------------------------------ Operating profit 16,755 8,101 39,309Share of results of associates and joint ventures 231 (111) 169Finance income 921 1,047 2,225Finance costs (17,582) (21,912) (39,572) ----------------------------------- Profit / (loss) before tax 325 (12,875) 2,131Income taxes 5 (869) 523 (799) ----------------------------------- (Loss) / profit for the period from continuing operations (544) (12,352) 1,332 Discontinued operationsProfit / (loss) for the period from discontinued operations 6 4,766 (8,303) (8,077) ----------------------------------- Profit / (loss) for the period 4,222 (20,655) (6,745) =================================== Attributable to:Equity holders of the parent 3,082 (21,079) (7,587)Minority interests 1,140 424 842 =================================== (Loss) / earnings per share 7 pence pence pence Continuing operations (1.6) (12.5) 0.5 Discontinued operations 4.5 (8.1) (7.8) ----------------------------------- 2.9 (20.6) (7.3) =================================== Consolidated statement of recognised income and expense Six months ended Year ended 30 September 31 March 2006 2005 2006 (unaudited)(unaudited) (audited) £000s £000s £000s Profit / (loss) for the period 4,222 (20,655) (6,745) ----------------------------------- Income and expense recogniseddirectly in equity Currency translation differences (969) (4,602) (4,632) Actuarial (loss) / gain (789) (9,385) 13,559 Deferred tax movement on pension liability 237 2,477 (4,524) ----------------------------------- (1,521) (11,510) 4,403 ----------------------------------- Total recognised income and expense 2,701 (32,165) (2,342) =================================== Attributable to: Equity holders of the parent 1,561 (32,589) (3,184) Minority interest 1,140 424 842 Consolidated Balance Sheet As at Notes As at 30 September 31 March 2006 2005 2006 (unaudited) (unaudited) (audited) £000s £000s £000sNon current assetsGoodwill and other intangible assets 217,237 212,370 215,205Property, plant and equipment 10,512 10,271 10,686Investments accounted for using the equity method 3,437 2,946 4,548Financial assets - other investments 176 1,474 1,750Trade and other receivables 516 2,359 1,603Deferred tax assets 41,500 46,730 40,250 ------------------------------------ 273,378 276,150 274,042 ------------------------------------ Current assetsTrade and other receivables 137,802 116,342 112,847Financial assets - derivative financial instruments 377 208 429Current tax assets 808 781 498Cash and cash equivalent assets 8 28,431 62,129 68,879 ------------------------------------ 167,418 179,460 182,653 ------------------------------------ Total assets 440,796 455,610 456,695 ------------------------------------ Current liabilitiesFinancial liabilities - borrowings (7,925) (4,698) (7,335)Current tax liabilities (8,958) (4,707) (7,817)Financial liabilities - derivative financialinstruments (623) (619) (47)Trade and other payables (168,209) (182,191) (168,261)Provisions (4,513) (7,172) (5,756) ------------------------------------ (190,228) (199,387) (189,216) ------------------------------------ Non current liabilitiesFinancial liabilities - borrowings (288,602) (279,735) (287,771)Deferred tax liabilities (3,336) (5,375) (3,867)Retirement benefit obligations (103,156) (154,433) (124,523) ------------------------------------ (395,094) (439,543) (416,161) ------------------------------------ Total liabilities (585,322) (638,930) (605,377) ------------------------------------ Net liabilities (144,526) (183,320) (148,682) ==================================== Consolidated Balance Sheet(continued) As at 30 September As at 31 March 2006 2005 2006 (unaudited) (unaudited) (audited) £000s £000s £000sCapital and reserves attributable toequity holdersShare capital 11 37 37 37Share warrants 11 5,379 - 5,290Share premium account 12 3,604 3,604 3,604Exchange reserve 12 239 1,238 1,208Retained earnings 12 (157,239) (189,204) (159,769) ------------------------------------- (147,980) (184,325) (149,630)Minority interest 3,454 1,005 948 ------------------------------------- (144,526) (183,320) (148,682) ===================================== Consolidated Cash Flow Statement Six months ended Year ended 30 September 31 March 2006 2005 2006 (unaudited) (unaudited) (audited) £000s £000s £000sCash flows provided by operatingactivities Profit / (loss) before taxation from continuing operations 325 (12,875) 2,131 Profit / (loss) before taxation from discontinued operations 4,766 (8,303) (8,077) ------------------------------------ 5,091 (21,178) (5,946) Adjustments for: Depreciation, amortisation and impairment 4,341 18,000 21,915 Increase in provisions 522 - 2,595 Effect of exchange rate movements (1,144) (1,933) (1,043) Share of results of associates and joint ventures (231) 111 (169) Profit on disposal of discontinued operations (4,766) (3,492) (3,492) Change in fair value of investments - (270) (496) Net finance costs 16,661 20,865 37,347 Adjustment to goodwill on recognition of tax assets 539 1,933 3,865 Other timing differences 9 63 404 ------------------------------------ 21,022 14,099 54,980 Cash expenditure charged to provisions (1,635) (1,378) (5,274) Change in trade and other receivables (24,418) 7,749 7,324 Change in trade and other payables 4,289 (6,798) (12,255) Pension funding in excess of charge to operating profit (23,317) (2,693) (12,679) Cash effect of currency swaps 1,778 (910) (1,493) ------------------------------------ (22,281) 10,069 30,603 Interest paid (8,480) (9,451) (17,298) Tax paid (1,216) (1,569) (2,092) ------------------------------------ (31,977) (951) 11,213 ------------------------------------ Cash flows (used in) / provided byinvesting activities Acquisition of subsidiaries (4,104) (15,527) (20,337) Acquisition of associates, joint ventures and other investments (1,265) - (1,689) Proceeds on disposal of discontinued operations 3,391 106,141 112,863 Purchase of property, plant and equipment and intangible assets (2,898) (3,092) (7,404) Proceeds from sale of property, plant and equipment 69 50 56 Interest received 812 922 1,970 Dividends received from associates - - 243 ------------------------------------- (3,995) 88,494 85,702 ------------------------------------- Consolidated Cash Flow Statement(continued) Six months ended Year ended 30 September 31 March 2006 2005 2006 (unaudited) (unaudited) (audited) £000s £000s £000s Cash flows (used in)/ provided byfinancing activities Repayment of borrowings (2,622) (79,235) (81,662) New borrowings 460 11,202 11,202 Issue costs of new borrowings - (1,506) (1,754) Shares and warrants issued 89 - 6 Cost of new share issues (421) - - Dividends paid to minority shareholders (380) (480) (926) ------------------------------------ (2,874) (70,019) (73,134) ------------------------------------ Net (decrease) / increase in cash and cash equivalents (note 8) (38,846) 17,524 23,781 ==================================== Notes to the Interim Financial Statements 1. General Information and Accounting Policies The accounting policies used in the interim financial statements are consistentwith International Financial Reporting Standards and those followed in thepreparation of the Group's annual financial statements for the year ended 31March 2006. The figures for the six months to 30 September 2006 and 30 September 2005 areunaudited and do not constitute statutory accounts. However, the auditors havecarried out a review of the figures to 30 September 2006 and 30 September 2005and their report is set out in the Independent Review Report on page 22. The full year figures for the year ended 31 March 2006 set out in this report donot constitute statutory accounts for the purposes of section 240 of theCompanies Act 1985 but are derived from the statutory accounts for that yearafter making the adjustment detailed in note 2. The statutory accounts for theyear ended 31 March 2006 have been reported on and delivered to the Registrar ofCompanies. The report of the auditors in respect of such accounts wasunqualified and did not contain a statement under section 237 (2) or (3) of theCompanies Act 1985. 2. Adjustment to Amounts reported in Prior Periods In the six months to 30 September 2006, £513,000 was received by the Group as aresult of an agreement with the vendor to an adjustment to the consideration onthe acquisition of Robustelli World Travel in February 2006. Goodwill arising onthe acquisition has been reduced by £513,000. The balance sheet as at 31 March2006 has been restated to reflect this adjustment. 3. Revenue External revenue from clients by geographical area Six months ended Year ended 30 September 31 March 2006 2005 2006 (unaudited) (unaudited) (audited) £000s £000s £000s Central 5,722 3,696 7,476Other Europe 109,842 109,612 232,004 ------------------------------------------- Europe 115,564 113,308 239,480North America 27,639 20,058 46,236AsPac 5,992 5,712 11,512 -------------------------------------------- 149,195 139,078 297,228 ============================================ External revenue from clients by origin Six months ended Year ended 30 September 31 March 2006 2005 2006 (unaudited) (unaudited) (audited) £000s £000s £000s Central 5,726 3,698 7,476Other Europe 110,642 109,609 231,899 ----------------------------------------------- Europe 116,368 113,307 239,375North America 26,835 20,058 46,309AsPac 5,992 5,713 11,544 ----------------------------------------------- 149,195 139,078 297,228 =============================================== 4. Operating expenses Operating expenses include the following: Six months ended Year ended 30 September 31 March 2006 2005 2006 (unaudited) unaudited) (audited) £000s £000s £000s Adjustment to goodwill on recognition of tax assets 539 1,933 3,865Amortisation of client relationships 1,325 1,243 2,534Amortisation of other intangible assets 717 605 1,505Depreciation of property, plant and equipment 2,296 2,069 3,793Exceptional pension (credits) (4,473) - (6,952) ======================================== An exceptional pension credit of £3,887,000 in the six months ended 30 September2006 arose from the payment of £12,530,000 to the Hogg Robinson (1987) PensionScheme to fund the settlement of transfer values to deferred members at enhancedlevels. A further credit of £586,000 arose on settlement of pension liabilitiesin Norway. 5. Taxation Taxation (credit) / charge: Six months ended Year ended 30 September 31 March 2006 2005 2006 (unaudited) (unaudited) (audited) £000s £000s £000s United Kingdom (943) 262 (194)Overseas 2,351 1,148 4,858Adjustment to goodwill on recognition of tax assets (539) (1,933) (3,865) ----------------------------------------- 869 (523) 799 ========================================= The effective rate for the six months to September 2006 is higher than expecteddue to the seasonality of certain jurisdictions and due to non tax deductiblepremium on preference shares. We anticipate a full year effective rate in theregion of 30%. Adjustments to goodwill on recognition of tax assets The Group has acquired businesses with tax losses and other deferred tax assets.These have been recognised in the balance sheet on acquisition to the extentthat they were expected to be realised based on information at the acquisitiondate. The Group has subsequently been able to use tax losses and other assets to agreater extent than anticipated on acquisition. In those cases the value ofgoodwill is reduced. In order to comply with the requirements of IAS12, IncomeTaxes, a charge is reported in operating expenses (as shown in note 4) whilst adeferred tax credit is made. The Group continues to make use of tax losses and other reliefs whereverpossible. The adjustment of £3.9m for the year to 31 March 2006 is the difference betweenthe profit before tax reported in the Prospectus and the equivalent figurereported in the Group's annual financial statements for the year ended 31 March2006. 6. Discontinued Operations Six months ended Year ended 30 September 31 March 2006 2005 2006 (unaudited) (unaudited) (audited) £000s £000s £000s Disposal of Benefits and Consulting Services division 4,657 1,452 1,452Trading results of Benefits and Consulting Services division - 1,617 1,617Impairment of goodwill ofBenefits and Consulting Services division - (13,682) (13,682)Disposal of TRX Inc 109 2,040 2,040Change in valuation of TRX Inc - 270 496 ----------------------------------------- 4,766 (8,303) (8,077) ========================================= The Benefits and Consulting Services division was sold on 8 July 2005. In thesix months ended 30 September 2006, additional contingent disposal proceeds werereceived by the Group. The gains on disposal of discontinued operations in the six months ended 30September 2006 do not give rise to a tax charge. 7. Earnings per Share The following amounts have been used in the calculation of earnings per share.The average number of shares in issue takes into account the exercise of sharewarrants and the 25-for-1 bonus issue of shares which took place in October 2006in connection with the IPO. Six months ended Year ended 30 September 31 March 2006 2005 2006 (unaudited) (unaudited) (audited) £000s £000s £000s Earnings for the purposes of(loss) / earnings per share (Loss) / profit for the period from continuing operations (544) (12,352) 1,332 Less amount attributable to minority interest (1,140) (424) (842) ----------------------------------------- Continuing operations (1,684) (12,776) 490 Discontinued operations 4,766 (8,303) (8,077) ----------------------------------------- 3,082 (21,079) (7,587) ========================================= 000s 000s 000s Average number of shares 105,412 102,597 103,291 ========================================= 8. Net Debt, Cash and Cash Equivalents Six months ended Year ended 30 September 31 March 2006 2005 2006 (unaudited) (unaudited) (audited) £000s £000s £000s Net (decrease) / increase in cash and cash equivalents (38,846) 17,524 23,781Cash and cash equivalents at the beginning of the period 68,577 44,052 44,052Exchange rate effects (1,370) 284 744 --------------------------------------- Cash and cash equivalents at the end of the period 28,361 61,860 68,577 ======================================= Cash and cash equivalent assets 28,431 62,129 68,879Overdrafts (70) (269) (302) --------------------------------------- 28,361 61,860 68,577 ======================================= Six months ended Year ended 30 September 31 March 2006 2005 2006 (unaudited) (unaudited) (audited) £000s £000s £000s Cash and cash equivalent assets 28,431 62,129 68,879Borrowings due within one year (7,925) (4,698) (7,335)Borrowings due after more than one year (288,602) (279,735) (287,771) ---------------------------------------- Net debt (268,096) (222,304) (226,227) ======================================== Net debt has increased by £41,869,000 from £226,227,000 at 31 March 2006, to£268,096,000 at 30 September 2006. 9. Acquisitions since 31 March 2006 On 22 May 2006, the Group acquired an additional 8% in Spendvision HoldingsLimited, bringing its total holding to 51%. The Group's share of the net assetsof Spendvision Holdings Limited amounted to £1,846,000 on acquisition andgoodwill of £1,960,000 was recognised. On 1 August 2006, the Group acquired a 100% interest in HRG Czech Republic,including its business in Slovakia, for consideration of £3,038,000. Net assetson acquisition amounted to £388,000 and goodwill of £2,650,000 was recognised. On 31 August 2006, the Group acquired a 100% interest in the business of HRGPolska for consideration of £895,000. Net assets on acquisition amounted to£405,000 and goodwill of £490,000 was recognised. On 1 September 2006, the Group acquired a 100% interest in the business of IanFlint & Associates for consideration of £152,000. Goodwill of £152,000 wasrecognised. The fair values and goodwill of businesses acquired are provisional subject toadjustments to be made within twelve months of the acquisition date. 10. Contingent Assets and Contingent Liabilities No change has taken place in the contingent assets and contingent liabilities asreported in the Company's Annual Report for the year ended 31 March 2006. 11. Share Capital and Share Warrants No changes to issued share capital took place in the six months ended 30September 2006. Warrants were issued in the period for consideration of £89,000which entitled the holders to subscribe for 1,804 ordinary shares on conversion. 12. Reserves Share Share Exchange Retained warrants premium reserve earnings (unaudited) (unaudited) (unaudited) (unaudited) £000s £000s £000s £000s At 1 April 2005 - 3,604 5,840 (161,217)Retained (loss) - - - (20,655)Minority interest - - - (424)Actuarial (loss) - - - (9,385)Deferred tax movement on pension liability - - - 2,477Currency translation differences - - (4,602) - --------------------------------------------------- At 30 September 2005 - 3,604 1,238 (189,204) =================================================== (audited) (audited) (audited) (audited) At 1 April 2005 - 3,604 5,840 (161,217)Issue of warrants and shares 5,290 - - -Retained (loss) - - - (6,745)Minority interest - - - (842)Actuarial gain - - - 13,559Deferred tax movement on pension liability - - - (4,524)Currency translation differences - - (4,632) - --------------------------------------------------- At 31 March 2006 5,290 3,604 1,208 (159,769) =================================================== (unaudited) (unaudited) (unaudited) (unaudited) At 1 April 2006 5,290 3,604 1,208 (159,769)Issue of warrants and shares 89 - - -Retained profit - - - 4,222Minority interest - - - (1,140)Actuarial (loss) - - - (789)Deferred tax movement on pension liability - - - 237Currency translation differences - - (969) - -------------------------------------------------- At 30 September 2006 5,379 3,604 239 (157,239) ================================================== 13. Post Balance Sheet Events The Company's shares were admitted to the Official List of the FinancialServices Authority and to trading on the Main Market of the London StockExchange on 12 October 2006. In advance of the listing, 405,909 shares were issued representing theentitlement of all warrant holders at that date. A bonus issue of 25 new sharesfor each existing share was then implemented such that 101,400,255 shares werein issue immediately prior to the issue of new shares. Pursuant to the offermade in connection with the Listing, 200,000,000 new shares were then issued foraggregate consideration of £180,000,000. Costs of the IPO are estimated at£21,934,000. Further costs of £2,083,000 arising from the rebranding of theGroup as HRG had arisen by that date. Part of the proceeds of the offer wereused to redeem the Company's preference shares at an aggregate value, includingaccumulated premium, of £94,526,000. The Group's previous borrowing facilitieswere cancelled and new facilities with an aggregate value of £220,000,000 wereput in place. A payment of £28,500,000 was made to the UK Pension Fund,including £3,500,000 to fund the settlement of liabilities to deferred membersof the scheme. Independent Review Report to Hogg Robinson Group plc Introduction We have been instructed by the Company to review the financial information forthe six months ended 30 September 2006 and 30 September 2005 which comprise theconsolidated interim balance sheet as at 30 September 2006 and as at 30September 2005 and the related consolidated interim statements of income, cashflows and of recognised income and expenses for the six months then ended andrelated notes. We have read the other information contained in the interimreport and considered whether it contains any apparent misstatements or materialinconsistencies with the financial information. Directors' Responsibilities The Interim Report, including the financial information contained therein, isthe responsibility of, and has been approved, by the directors. The ListingRules of the Financial Services Authority require that the accounting policiesand presentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where there are anychanges, and the reasons for them, are disclosed. The Interim Report has been prepared in accordance with the basis set out innote 1 of the Interim Financial Statements. Review Work Performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of management and applying analyticalprocedures to the financial information and underlying financial data and, basedthereon, assessing whether the disclosed accounting policies have been applied.A review excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit and therefore provides a lower level of assurance. Accordingly we do notexpress an audit opinion on the financial information. This report, includingthe conclusion, has been prepared for and only for the Company for the purposeof the Listing Rules of the Financial Services Authority and for no otherpurpose. We do not, in producing this report, accept or assume responsibilityfor any other purpose or to any other person to whom this report is shown orinto whose hands it may come save where expressly agreed by our prior consent inwriting. Review Conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 September 2006 and 30 September 2005. PricewaterhouseCoopers Chartered AccountantsLondon12 December 2006 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Hogg Robinson Group