28 May 2009 07:21
28 May 2009 Hogg Robinson Group plc (`HRG', `the Company' or `the Group') Preliminary Results for the year ended 31 March 2009 A Solid Performance under Challenging ConditionsSummary of resultsYears ended 31 March 2009 2008 ChangeRevenue £351.3m £332.2m +5.7%Underlying earnings (1)- Operating profit £34.6m £37.9m -£3.3m- Profit before tax £24.7m £27.1m -£2.4m- Earnings per share (p) 4.7p 5.4p -13.0%Reported earnings- Profit before tax £15.4m £25.2m -£9.8m- Earnings per share (p) 2.4p 5.5p -56.4%Free cash flow (2) £40.1m £11.6m +£28.5mNet debt £85.3m £110.4m -£25.1mFinancial Highlights
- Revenue increased by 5.7% to £351m
- on a constant currency basis, revenue contracted by 3.7%
- Effective cash management delivers £25.1m reduction in net debt
- year-end net debt to EBITDA(3) of 2.0x (FY08: 2.5x); interest
cover 5.0x (FY08: 4.5x)
- Full-year dividend of 1.2p per share; dividend cover of 3.9x (of
underlying earnings per share)
Business Highlights
- Continued success with net new business wins ahead of the prior
year and a healthy pipeline
- Client retention rate remains above 90%
- Strong control of cost base with actions taken in H2 to realign
to lower volumes
- Robust performance from UK and German operations; work continues
to consolidate branch network across Europe
- Successful year in North America for new business which will
provide a solid foundation in the face of a continued challenging market
backdrop
- Further new client wins in Asia Pacific
- Continuing growth for Spendvision, with revenue up 61% and
operating profit up £1.9m
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
(3) Earnings Before Interest, Taxation, Depreciation and Amortisation (EBITDA) is before exceptional items, including HRG's share of results of associates and joint ventures
David Radcliffe, Chief Executive of Hogg Robinson Group plc, said:
"After a strong first-half performance the second half was more challenging as the entire industry felt the full impact of unprecedented economic conditions. Despite this, the robustness of our business model was evident as our second half revenue contracted by only 8.5% at constant currency. We have taken strong action to align our cost base with the current environment and to underpin profitability whilst not compromising our excellent customer service.
In the shorter term, we anticipate that current market conditions will continue to be challenging, but our focus remains on the core drivers which have made HRG successful - a proven track record of winning business and delivering an excellent service to help our clients reduce costs.
Looking further ahead, our strategy is unchanged and we remain well placed to take advantage of the economic recovery when it happens."
Contact Details
Hogg Robinson Group +44 (0)1256 312 600David Radcliffe, Chief ExecutiveJulian Steadman, Group FinanceDirectorAngus Prentice, Head of InvestorRelationsTulchan Communications +44 (0)20 7353 4200David AllchurchStephen MalthouseNotes to EditorsHogg Robinson Group plc (HRG) , the award-winninginternational corporate travel services company, was established in 1845 andoperates from headquarters located in Basingstoke, Hampshire, UK. Itsinterests include owned or controlled corporate travel services operations in25 key driver/growth markets throughout Europe, North America and AsiaPacific, which are supported by a network of contracted partners. The HRGnetwork extends to nearly 120 countries.
HRG's philosophy is to focus on its clients, underpinned by three differentiators - its people, its technology and its breadth of service. The company has experienced management and skilled operators together with a strong reputation for technology which it develops and owns in-house. In addition HRG is the only major travel management company to offer a real breadth and depth of services, all of which combine to serve every client around the globe delivering value, cost savings, efficiency and innovation, without compromise.
HRG's portfolio of clients spans a broad range of industry sectors including but not limited to Telecommunications, Banking and Finance, Pharmaceutical, Automotive, Retail, Food Manufacturing, Media and Entertainment.
www.hoggrobinsongroup.com
A presentation for analysts and institutional investors will beheld at 0900h BST today at the Merrill Lynch Financial Centre, 2 King EdwardStreet London EC1A 1HQ. (Pre-registration for this event is necessary tocomply with security procedures at Merrill Lynch.) Copies of the presentationwith audio commentary from HRG's presentation team will be available atwww.hoggrobinsongroup.com by 1100h BST today or soon thereafter.This announcement may contain forward-looking statements withrespect to certain of the plans and current goals and expectations relating tothe future financial conditions, business performance and results of HoggRobinson Group Plc (HRG). By their nature, all forward-looking statementsinvolve risk and uncertainty because they relate to future events andcircumstances that are beyond the control of HRG, including amongst otherthings, HRG's future profitability, competition with the markets in which theCompany operates and its ability to retain existing clients and win newclients, changes in economic conditions generally or in the travel and airlinesectors, terrorist and geopolitical events, legislative and regulatorychanges, the ability of its owned and licensed technology to continue toservice 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 inthese forward-looking statements. HRG undertakes no obligation to publiclyupdate or revise forward-looking statements, except as may be required byapplicable law and regulation (including the Listing Rules). No statement inthis announcement is intended to be a profit forecast or be relied upon as aguide to future performance.
Chairman's Statement
I indicated in last year's statement that the business of managedtravel for corporate clients has been, historically, more resilient than manyother travel related businesses in times of economic uncertainty. This year'sresults support that view.
The global economic crisis that was already in evidence in the financial sector this time last year has worsened and spread. However, the Company has performed in line with consensus earnings estimates and has produced an underlying pre-tax profit at only 9% below last year. Further, with effective cash management, we have reduced the year-end net debt by £25m to £85m. Under the circumstances this is a very satisfactory achievement.
HRG's resilience stems from its substantial fee-based revenue andits ability to adjust its cost base as circumstances change withoutsacrificing the delivery of first class service to its clients. Given thesignificant changes that occurred in the second half of the year, this activecost management has helped these results to a small extent and will contributesignificantly more to the new financial year. This will help offset the impactof the challenging market on our future revenues and fee-earning ability.Further, when combined with our strong client retention and continuing successin winning competitive tenders for new clients, we are confident that we havethe right business model and believe we are well positioned to benefit fromthe economic upturn when it comes.Cash generation and debt levels are key areas of focus for us,particularly in the present climate. After careful consideration, the Boardannounced in February 2009 that the Company's future would be best protectedby re-basing the dividend and retaining the cash so released. As such, theinterim dividend of 1.2p per share that was paid in January 2009 will be theonly dividend this year. We remain committed to a progressive dividend policyand expect to increase dividends from the re-based level of 1.2p as soon as itis prudent to do so. It is likely that one third of future dividends will bepaid as an interim and two thirds as a final payment. Based on the 31 March2009 year end share price of 15.5p, our re-based dividend of 1.2p per sharerepresents a yield of 7.7%.
Pension funding is another important issue for us. We have recently agreed with the trustees of our principal scheme in the UK that, as part of their latest actuarial review and in spite of the increase in liabilities, cash contributions would remain at essentially the same level as agreed at the time of the IPO in 2006.
Shareholders should be aware that our investor base has changedsignificantly during the course of the last year. Two industry participants,one a long-term business partner (Dnata) and the other (Beverweerd InvestmentsBV) connected to a prior partner with whom we still have some surviving jointinterests, hold 23% and 21% of the share capital respectively. The top tenshareholders hold around 80% of the total capital of the Company and thecurrent register includes few of those who invested at the time of the IPO.
I will leave the detailed discussion of business performance to the Chief Executive in his statement, in conjunction with the Directors' Report and financial statements. I hope you agree that, in a difficult global economy, this has been a good year for the Company.
Looking forward, we do not expect much change to the current market conditions during 2009 and have adjusted our cost base to reflect that expectation. Our strategy is unchanged and we remain in good shape to take advantage of the economic recovery when it takes place.
In closing, let me on behalf of the Board thank the executives andstaff of every level who continue to rise to the challenge of delivering thebest client service and through that, the best possible Company performance.They hold the future of the Company in their hands and I know they will strivetirelessly to build value for clients, for their fellow employees and forshareholders.Chief Executive's ReviewOur businessHRG is an international corporate travel services company operatingin nearly 120 countries across the world. We are the UK's leading provider andone of only three globally-experienced travel management companies. The Groupowns or controls operations in 25 markets throughout Europe, North America andAsia Pacific and, coupled with a network of contracted partners, is able tooffer a truly global service.Our diversified client portfolio ensures that the Group is notoverly exposed to any individual client or sector. Our top ten clients accountfor 22% of total client revenue, with no single client accounting for morethan 5%. Employee travel for our largest sector, Banking & Finance, accountsfor less than 20% of client revenue.The bulk of our revenue comes from clients who typically sign 3-5year contracts with us. Indeed, we have worked with several clients for morethan 15 years. For the most part, we receive fees from clients for the workthat we do rather than being dependent on commissions from suppliers. Thiswork covers a range of services, from simple bookings to data analysis andsupplier negotiation. We are not generally exposed to changes in the class oftravel, for example from a switch from business to economy class. Our feearrangements are structured to meet the needs of each client and include fixedmanagement fees, variable transaction fees and cost-plus arrangements.We also work closely with travel suppliers such as airlines, railoperators, hotels and car hire companies where we are able to improve theefficiency of their distribution systems. Supplier revenue is generallycovered by service level agreements that include, in addition to some volumedependency, promotional support, the provision of information and support inestablishing more efficient distribution methods with new technologicalsolutions.
Our market
As the global economic climate deteriorated through the course ofour financial year, with the recession taking full effect from aroundSeptember 2008, business travel and other indicators of economic growth beganto suffer. Recent figures released by many of the flag-carrier airlines and bythe International Association of Travel Agencies have shown a noticeable moveaway from premium cabins. There are similar trends in other areas of businesstravel, where clients are choosing budget hotels and same-day rail travel toreduce their costs.However, while the short-term trends are down, the long-termpicture continues to remain very positive. The latest figures from the WorldTravel & Tourism Council show business travel volume for 2009 at $524 billionand predict growth of around 4% per annum for the coming decade.
Our strategy
We are building a sustainable business to deliver value to allstakeholders, including clients, suppliers, investors and employees, and ourgoal is to become the world's leading international corporate travel servicescompany. Our strategy is founded on the following principles:
- Our core activity is managing travel and related expenditure for companies who gain value from such management. They tend to be either large national or multinational companies.
- We are client-focussed and see our clients as partners with mutual interests.
- We are a knowledge-based business and value people as a major asset.
- We encourage long-term partnerships with suppliers who recognise our value to their distribution channels.
- We consistently deliver innovative ideas, excellent service and value through motivated and empowered people.
- We use our independent technology to improve internal efficiency and to provide our clients with an efficient and cost effective service.
- We will own or control our operations in countries where the majority of clients initiate and manage their expenditure consolidation programme; elsewhere we will form strong partnerships.
- We will seek to manage our business with low capital intensity and strong cash flow.
Our performanceOverviewHRG delivered a solid performance for the year under verychallenging conditions. On a reported basis, our revenue rose by 5.7% to £351mand operating profit was down by £10.7m to £25.3m. These figures reflect a netexceptional charge of £5.6m primarily for restructuring costs partially offsetby the release of accruals relating to acquisitions made some years ago.Another year of effective cash management delivered a significant reduction of£25.1m in our year-end net debt to £85.3m.After adjusting for favourable movements in exchange rates, revenuewas down by 3.7%. Underlying operating profit, which is before amortisation ofacquired intangibles and exceptional items, was down by £3.3m to £34.6m toproduce a margin that was down from 11.4% to 9.8%.In many respects, it was a year of two halves. Our first halfperformance was strong and we grew both revenue and operating profit; thesecond half was very different, as the full effect of the recession took holdand companies everywhere began to cut back spending. Importantly, with themajority of our revenue from client management and advisory fees, thesechanges were not as damaging as many might have thought and our second halfrevenue was down by only 8.5% at constant exchange rates. We reduced ourstaffing levels during the latter part of the year once the pattern of clientactivity became clear and, with some further reductions since year end, ourcost base is now significantly below the March 2008 level and, we believe,appropriate for the foreseeable future. The cost of these changes was £6.9m,which has been taken as an exceptional charge. With these cost reductionactions now largely complete, we should be able to maintain profitabilitywithout damaging our ability to react when market conditions improve.As a result of these cost reduction actions we have said goodbye toa number of colleagues over the last year, many with long service. I thankthem for all they have given to the Group and wish them well for the future.It is always difficult to see colleagues leave and I would like to thank allof our staff for their hard work and commitment.
I am pleased to report that we have maintained our client retention rate above 90% and again won more new business than we lost. We are being invited to tender by an increasing number of prospective new clients and are hopeful that our past success rate will continue.
All of this has helped keep our business model robust. Our clear focus on the individual needs of our clients sets us apart in the travel management sector and provides a formula for continuing profitability and cash flow.
OutlookWe do not expect much change to the current market conditionsduring 2009 and have adjusted our cost base to reflect that expectation.Trading for April was heavily influenced by the Easter holidays and providedno reliable indication of any change to the short-term outlook. Our strategyis unchanged and we remain in good shape to take advantage of the economicrecovery when it takes place.
Client activity
This was another successful year for client retention and new business.
New clients that we welcomed during the year included Astellas Pharma, British Sky Broadcasting, De La Rue, DIRECT TV, Lenovo, Nationwide Building Society and Wachovia.
Elsewhere, we have secured new contracts with substantial new volumes from existing clients such as BNP Paribas, Kemira, News Corporation and Smiths Group.
Noteworthy contract renewals included Axel Springer, Barclays, Cond© Nast, Deutsche Bank, Hennes & Mauritz, HSBC, Motorola, Prudential, PricewaterhouseCoopers, Royal Bank of Canada, Sony and Syngenta.
Our drive for more non-cyclical clients secured a place on the new one-stop travel management company category with the UK Government's Office of Government Commerce.
Our continued focus on managing the total cost of trip has resultedin increased volume of hotel and ground transportation, including rail, fromour existing clients as they recognise the value of consolidating all elementsof their travel expenditure with HRG.
Events and meetings management is one of several services that we provide and we have now aligned this more closely with our core managed travel services to existing clients. This has enabled us to protect volumes in a competitive market place.
The macroeconomic downturn has created opportunities for us, asclients become even more receptive to programme changes that can reduce theirtravel costs. Our expertise in this area helps us to retain clients and alsogenerate additional fees. Developments in the marketplace generally, such aschanged supplier inventory distribution, will provide the opportunity to leadclients through the complexities of modern day travel and to provide them witha wide range of solutions instantly.
Our sales pipeline remains healthy and we believe that our recent successes, both in retaining clients and securing new revenue, will continue into the current financial year.
Regional reviewEuropeYears ended 31 March 2009 2008 Change Revenue £260.3m £247.8m +5.0%Operating profit £24.9m £36.2m -£11.3m
Underlying operating profit (1) £31.9m £34.9m -£3.0m Underlying margin (1)
12.3% 14.1% -1.8%
(1) Before amortisation of acquired intangibles and exceptional items
The revenue increase of 5.0% includes an 8.9% benefit from foreign exchange; underlying operating profit fell by £3.0m and includes a £1.6m benefit from foreign exchange.
Our UK business performed relatively well during the year helped bydiligent cost control and improved productivity from such things as advancedservice configuration techniques, including telephony call-flow switching andincreasing `virtual' home working capability. Over 100 of HRG's UK-basedtravel consultants now work from home and we expect this number to rapidlygrow further. Our UK Government contract with the Ministry of Defence andForeign & Commonwealth Office was implemented in full during the year and isnow well established; we are now seeing a significant increase in hotelvolumes in particular as we expand our work for this client.Our German business also delivered a good performance during theyear, helped by contributions from the Euro 2008 Championships in neighbouringSwitzerland and Austria, and the successful progress of German Bundesligateams such as FC Bayern Munich and Hamburg FC in the UEFA Champions League andUEFA Cup respectively.As part of our European restructuring, we continued to consolidateour branch network across the region. In the UK we have focused our operationsinto core `hub' locations in London, Glasgow and Belfast, and established`specialist' operating centres in Manchester (rail), Leicester (hotelreservations) and Farnborough (24/7 support). In Italy, we consolidated intocore hub locations in Milan, Rome and Matera, the latter as a low-cost centrein the south of the country which is partly subsidised by the ItalianGovernment. In the Nordic region we will focus on core hub locations in Oslo,Stavanger, Bergen, Stockholm, Malmo and Gothenburg.North AmericaYears ended 31 March 2009 2008 Change Revenue £71.3m £65.3m +9.2%Operating loss (£0.7m) (£1.3m) +£0.6m
Underlying operating profit (1) £1.3m £1.6m -£0.3m Underlying margin (1)
1.8% 2.5% -0.7%
(1) Before amortisation of acquired intangibles and exceptional items
The revenue increase of 9.2% includes a 12.3% benefit from foreignexchange; underlying operating profit fell by £0.3m, with little benefit fromforeign exchange. After last year's investment in infrastructure andmanagement, it was disappointing to see volumes fall in the second half of theyear. However, we believe this performance to be better than the industryoverall.The region tends to favour transaction fees and, although we actedto reduce our cost base, the actions proved not to be quick enough. This hasnow been rectified and we expect to see significant benefits from these costreduction actions in the current year.
It was a good year for new business, with client wins exceeding losses, and this should help provide a solid foundation for recovery in the future. There were also numerous successful client renewals and contract extensions, including CBC/Radio-Canada, Deutsche Bank (USA) and Royal Bank of Canada. Deutsche Bank also added three consulting projects.
Our chartering business for sports teams progressed well and now represents almost two thirds of the National Basketball Association.
Looking ahead, we anticipate some positive developments from further enhancement of our consulting services and the roll-out of our proprietary technology products such as HRG TripPassTM, a trip authorisation tool that manages client pre-trip approvals.
Asia PacificYears ended 31 March 2009 2008 Change Revenue £19.7m £19.1m +3.1%Operating profit £1.1m £1.1m --
Underlying operating profit (1) £1.4m £1.4m -- Underlying margin (1)
7.1% 7.3% -0.2%
(1) Before amortisation of acquired intangibles and exceptional items
Following a strong first half, volume reduced sharply during thesecond half. For the full year, the revenue increase of 3.1% includes a 7.3%gain from foreign exchange. An improved contribution from Spendvision in thisregion, together with cost reduction actions, delivered underlying operatingprofit that was unchanged at £1.4m. Note that operating profit includes theresults from subsidiaries in Australia and Singapore, but excludes the resultsfrom joint ventures in Hong Kong and mainland China.Our largest market in this region, Australia, suffered most fromthe lower volumes. On the positive side, our contract with the QueenslandGovernment to provide a fully integrated travel and expense management systemhas now been implemented following an extensive pilot phase. This systemenables the client to handle the process from travel authorisation to expensereclaim through a single application environment. Using our HRG UniversalSuper PlatformTM (USP) this modular delivery will give clients the choice ofindividual or a full suite of products.
Singapore performed relatively well by reducing costs as volumes declined. We have recently implemented a significant win in this market and this should provide a good start to the new financial year.
It was a similar story of swift cost reduction action in Hong Kong and mainland China, where both joint ventures were able to react quickly to the second half volume declines in order to maintain performance.
Spendvision
HRG's Spendvision expense management business provides expensemanagement solutions via the internet. Its technology automates the wayemployees process their expense claims and gives a company better control andvisibility of its indirect expenses. Spendvision operates in many countries;its appeal is broad and many of its clients are not HRG corporate travelclients. It remains an exciting long-term opportunity for the Group.The Spendvision results are included in the regional results above.This was another year of rapid growth, with revenue increasing by 61% and theaddition of £1.9m to underlying operating profit. The increase in revenue wasdriven by existing and new customers, with growth from partners using theSpendvision platform with their own branding and growth in the Spendvision.comexpense management product.TechnologyTechnology remains a critical success factor in our business, evenmore so during tough economic times when our clients place more demands on usthan usual for finding more innovative ways to reduce their travel costs. Ourdecision, made some years ago, to develop and own our technology has proved tobe the right one since it gives us the necessary flexibility to ensure thatour focus remains on serving the individual needs of our clients. It has alsoafforded HRG a unique advantage over peers that are dependent on usingthird-party technology solutions.
The development and deployment of our own technology continued during the year. Central to our progress in this area is our technology business platform (USP) which addresses, among other things, the problem of increasing fragmentation of supply and enables HRG to provide a common base from which to link front-end booking applications to suppliers and their services. We are now steadily linking inventory to end-user clients and HRG travel consultants via USP through a staged roll-out of product applications.
More technology products continue to be linked to the USP. Duringthe year we deployed our new i-Suite product and HRG Online, our new onlinebooking tool, with great success. The HRG Point of Sale (Agency Desktop)application continues to evolve with pilots undertaken in the USA and the UKin two separate suppliers, and our new reporting suite is currently under testprior to deployment. We also installed a full version of the application intoone of our major partners, and have appeared in several Microsoft promotionalactivities including a video on why and how we implemented our StructuredOrientated Architecture strategy.During the year, we renegotiated a number of core IT infrastructurecontracts and undertook process efficiency reviews across the business. In thelatter part of last year we started the call for technology integrationstandards in the industry by bringing together key suppliers. Thefragmentation of information, and to some extent inventory content, iscreating a breakdown in what has historically been a seamless environment. Oursuppliers recognise that we need to work proactively together to ensure ourmutual clients realise the benefits of one simple-to-use solution.
Awards
We remain dedicated to our clients and are proud that our high standards of client service continue to win recognition in our industry. In the past year, major industry awards have included:
- Best Corporate Team 2008/9 (Institute of Travel Management)
- Accommodation Innovation Award - UK Hotel Service (Business Travel Show Innovation Awards 2009)
- Technology Innovation Award - HRG Universal Super PlatformTM (Business Travel Show Innovation Awards 2009)
- Best THALYS Distributor, 2008 to HRG Belgium (SNCB Phileas Awards)
- Best Account Management Team to HRG UK (Jet Airways)
- Best Business Travel Management Company, Diamond to HRG UK (Buying Business Travel Diamond Awards)
Additional Financial Disclosure
OverviewYears ended 31 March 2009 2008 ChangeRevenue £351.3m £332.2m +5.7%Underlying earnings (1)- Operating profit £34.6m £37.9m -£3.3m- Profit before tax £24.7m £27.1m -£2.4m- Earnings per share (p) 4.7p 5.4p -13.0%Reported earnings- Profit before tax £15.4m £25.2m -£9.8m- Earnings per share (p) 2.4p 5.5p -56.4%Free cash flow (2) £40.1m £11.6m +£28.5mNet debt £85.3m £110.4m -£25.1mNotes
(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
Revenue
The revenue increase of 5.7% represents a 3.7% decline at constant exchange rates offset by a 9.4% increase from favourable currency translation. At constant exchange rates, revenue increased by 1.8% in the first half and decreased by 8.5% in the second half.
Operating expenses
Operating expenses, excluding exceptional items, increased by 7.7% (£23.0m) to £320.4m. Personnel costs, which represent approximately two thirds of the total, were up by 7.4% (£14.4m) and other expenses were up by 8.3% (£8.6m). Other expenses include an increase of £1.0m for depreciation and amortisation as a result of continuing investment in technology and an increase of £0.6m for amortisation of acquired intangibles from changes in exchange rates.
At constant exchange rates, operating expenses, excluding exceptional items, decreased by 2.5% compared to a decrease of 1.8% in the average number of employees. At the year end, there were 10% fewer employees than the prior year end.
Underlying operating profit
The decrease of £3.3m includes a benefit of £1.6m from favourable currency translation. The underlying operating profit margin, which is not affected by currency movements, declined from 11.4% to 9.8%.
Exceptional items
The net cost of exceptional items was £5.6m for the year, compared to a net benefit of £1.2m in the prior year.
The current year includes restructuring costs of £6.9m, a benefitof £1.6m from unutilised accruals related to acquisitions in prior years and acost of £0.3m in respect of an adjustment to goodwill in Germany associatedwith recognition of additional deferred tax assets on acquisitions in earlieryears. This latter item is offset by a deferred tax credit and therefore hasno impact on net earnings for the year.The prior-year net benefit was due to a favourable £4.4marbitration settlement, partially offset by a £2.4m charge for costsassociated with a long-standing contract and £0.8m in respect of an adjustmentto goodwill in Germany associated with recognition of additional deferred taxassets.Net finance costs
Net finance costs reduced by £0.9m to £10.0m, with lower net external interest of £1.6m partially offset by higher IAS 19, Employee Benefits, costs of £0.8m. These figures include an additional cost of £0.3m due to changes in exchange rates.
As a result of reducing interest rates, external interest costsdecreased by £1.6m to £8.4m and were covered 5.0 times by EBITDA beforeexceptional items (FY08: 4.5x). The average net debt during the year was verysimilar to the prior year. Typical working capital requirements that are muchhigher than the levels reported in March.
The net finance costs relating to pension accounting under IAS19 were increased by £0.8m to £1.2m for the year. The charge for the year to 31 March 2010 will increase by a further £1.8m to £3.0m.
Taxation
The tax charge for the year represents an overall tax rate of 41%of the reported profit before tax, compared to an overall rate of 31% in theprior year. These composite rates include non-recurring tax items togetherwith the tax on exceptional items. Excluding these non-recurring andexceptional items, the tax rate for the current year was 37% compared to 33%in the prior year.
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 £14.2m (FY08: £16.6m).
Years ended 31 March 2009 2008 £m £mProfit before tax 15.4 25.2Add/(deduct):- Amortisation of acquired intangibles 3.7 3.1- Exceptional items 5.6 (1.2)Underlying profit before tax 24.7 27.1Underlying tax charge (8.8) (9.7)Underlying profit after tax 15.9 17.4Less:
- Amounts attributable to minority interests (1.7) (0.8)
14.2 16.6
Average number of ordinary shares issued 304.2m 304.9m
Underlying earnings per share 4.7p 5.4pDividends
An interim dividend of 1.2p per share was paid in January 2009 and, as announced in February 2009, there will be no final dividend. This leaves the annual dividend at 1.2p and is covered 3.9 times by underlying earnings per share.
Return on capital employedReturn on capital employed is calculated by dividing underlyingoperating profit plus net share of the results of associates and jointventures by average net assets. Average net assets are based on the 12 monthends for the financial year and exclude net debt, pension deficits and taxprovisions. Average net assets amounted to £211.3m (FY08: £195.3m) comparedwith £173.8m at the year end (FY08: £188.0m). The return for the year was16.4% (FY08: 19.4%).
Cash flow
Free cash flow - which includes all cash flow except acquisitionsand disposals, dividends and the impact of foreign exchange movements -increased by £29.0m to £44.0m, primarily due to improved working capital. TheGroup was able to reduce its working capital significantly at the year end andexpects to repeat this activity at future half-year and full-year reportingdates to help remove uncertainty about compliance with banking covenants.Capital expenditure increased by £1.6m to £9.4m due primarily to continuinginvestment in North America and the impact of changes in exchange rate..In addition to free cash flow, the other major cash flow items arerelated to acquisitions and dividends. The £3.6m of net acquisition anddisposal spending in the prior year related to the increased ownership ofSpendvision Holdings Limited and acquisitions in Belgium and the CzechRepublic. Dividends paid in cash to shareholders during the year were £12.0mcompared to £11.6m in the prior year. Looking forward, a dividend of 1.2p pershare paid in cash to all shareholders on the register at the year end wouldcost £3.7m.Pension obligations
The Group's pension deficits under IAS 19 have increased by £17.2m to £65.3m before tax.
The UK scheme deficit increased by £12.7m to £51.3m. The schemeassets decreased by £25.1m, primarily as a result of investment performance.The scheme liabilities decreased by £12.4m, with a higher discount rate saving£21.1m, a lower inflation rate saving £10.3m and increased life expectancyadding £9.4m. The effect of a recent agreement with the trustees is that, aspart of the latest actuarial review, cash contributions would remain atessentially the same level as agreed at the time of the IPO in 2006. Annualcash contributions amount to 15.2% of pensionable salaries plus a deficitreduction payment of £6.6m per annum. The total charge against profitsincreased by £0.1m to £3.0m.
The overseas schemes are primarily in Germany and Switzerland, where the year-end deficit increased by £4.5m to £14.0m, primarily due to changes in exchange rates.
At the year end, there was a deferred tax asset of £14.4m (FY08: £10.8m) related to the UK deficit and £1.2m (FY08: £0.5m) related to the overseas schemes.
Funding and net debt
The Group's principal borrowing is from a £220m multi-currencyrevolving credit facility (RCF) that is committed until September 2011. TheRCF is used for loans, letters of credit and guarantees with interest based onLIBOR/EURIBOR plus a margin and mandatory costs incurred by the lenders. Inaddition, there are uncommitted facilities, amounting to around £26m at yearend, which are used for local flexibility.
The principal banking covenants for the RCF are measured twice each year, at the end of March and the end of September against EBITDA before exceptional items. The definition of EBITDA for covenant purposes is not materially different to the definition used in these financial statements. The covenants require that net debt is less than 3.0 times EBITDA and external interest is greater than 4.0 times EBITDA.
Net debt at year end reduced by £25.1m to £85.3m, which was equivalent to 2.0 times EBITDA before exceptional items (FY08: 2.5 times). Gearing was 47% (FY08: 56%), or 64% (FY08: 69%) including the pension deficits and related deferred tax assets.
Based on our current forecasts, the Board believes that these facilities provide sufficient headroom.
Financial risk management
Financial risks are managed centrally by the Group treasury department with policies that are approved by the Board and which do not allow transactions of a speculative nature.
Foreign currency risk
The translation of non-Sterling earnings, assets and liabilities is affected by changes in exchange rates.
Year-end net debt included £19.1m of non-Sterling debt (FY08: £54.2m), with changes in exchange rates, including the effect of currency swaps, increasing the balance by £6.9m.
The Group's transaction exposure is limited, with the majority of its transactions denominated in the currency of the country of operation. In the few instances where there is exposure, short-term hedges are taken once the exposure can be accurately identified.
The following principal exchange rates have been used in thefinancial statements: Income Balance Statement Sheet 2009 2008 Change 2009 2008 ChangeEuro 1.20 1.42 +18% 1.08 1.25 +16%Swiss Franc 1.87 2.32 +24% 1.63 1.97 +21%US Dollar 1.70 2.01 +18% 1.43 1.99 +39%Canadian Dollar 1.91 2.07 +8% 1.80 2.04 +13%Interest rate risk
The Group is exposed to interest rate risk on any borrowing at floating interest rates. The interest rate on the RCF is not currently fixed, although the Group keeps this situation under review.
Credit risk
The risk associated with deposits in commercial banks is managed by diversifying with a number of well known financial institutions. The risk associated with clients and suppliers is deemed low due to the absence of client concentration and the large number of countries where the Group trades.
Liquidity risk
The RCF is committed until September 2011 and used for loans, letters of credit and guarantees. In addition, the Group has uncommitted facilities that are used for local flexibility. The nature and scope of the Group's operations mean that working capital requirements fluctuate significantly during the year, with March and September typically being the lowest levels.
Going concern
The Board believe that the Group has adequate resources to continue to operate for the foreseeable future and have continued to prepare the Consolidated Financial Statements on a going concern basis.
Share price
The closing mid-market price at the year end was 15.5p (FY08: 40p). During the year, the price ranged from 3.5p to 53.0p per share.
Summary income statementYears ended 31 March 2009 2008 £m £mRevenue 351.3 332.2 EBITDA(1) before exceptional items 42.3 44.6Depreciation and amortisation (2) (7.7) (6.7)Underlying operating profit 34.6 37.9Amortisation of acquired intangibles (3.7) (3.1)Exceptional items (5.6) 1.2Share of associates and joint ventures 0.1 0.1Net finance costs (10.0) (10.9)Profit before tax 15.4 25.2Taxation (6.3) (7.7)Profit for the year 9.1 17.5 Summary balance sheetAs at 31 March 2009 2008 £m £mGoodwill and other intangible assets 258.0 231.4
Property, plant, equipment and investments 17.9 15.4 Working capital
(93.7) (55.3)Current tax liabilities (net) (7.8) (8.2)Deferred tax assets (net) 32.2 28.8Net debt (85.3) (110.4)Pension liabilities (pre-tax) (65.3) (48.1)Provisions and other items (8.3) (3.6)Net assets 47.7 50.0 Summary cash flow statementYears ended 31 March 2009 2008 £m £mEBITDA(1) before exceptional items 42.3 44.6Working capital movements 30.5 0.7Interest paid (6.9) (9.8)Tax paid (3.8) (6.0)Capital expenditure (9.4) (7.8)
Pension funding in excess of EBITDA charge (7.2) (6.5) Other movements
(1.5) (0.2)Free cash flow 44.0 15.0Acquisitions and disposals 0.1 (3.6)
Dividends paid to external shareholders (12.0) (11.6) Other movements
(0.1) (1.7)Net cash flow 32.0 (1.9)Foreign exchange (6.9) (4.1)Decrease/(increase) in net debt 25.1 (6.0)
(1) Earnings before interest, taxation, depreciation and amortisation
(2) Excluding amortisation of acquired intangibles
The comparatives in the summary cash flow statement have been restated to include dividends paid to minority interests in `Other movements' within free cash flow.
Hogg Robinson Group plcConsolidated Income StatementFor the year ended 31 March 2009 Years ended 31 March Notes 2009 2008 restated £m £m Revenue 1 351.3 332.2Operating expenses 2 (326.0) (296.2) Operating profit 25.3 36.0 Analysed as:Underlying operating profit 34.6 37.9Amortisation of acquired intangibles 8 (3.7) (3.1)Exceptional items 2 (5.6) 1.2 Operating profit 25.3 36.0 Net share of profit of associates and joint ventures 0.1 0.1 Earnings before interest and taxation 25.4 36.1Finance income 4 1.3 1.5Finance costs 4 (11.3) (12.4) Profit before tax 15.4 25.2Income tax expense 5 (6.3) (7.7) Profit for the year from continuing operations 9.1 17.5 Attributable to:Equity Shareholders of the Company 7.4 16.7Minority interests 13 1.7 0.8 9.1 17.5 Earnings per share 6 pence pence Basic 2.4 5.5Diluted 2.4 5.4
The year ended 31 March 2008 has been restated to highlight the effect of amortisation of acquired intangibles.
Hogg Robinson Group plcConsolidated Balance SheetAs at 31 March 2009 As at 31 March Notes 2009 2008 £m £m Non current assets Goodwill and other intangible assets 8 258.0 231.4 Property, plant and equipment 9 15.1 12.6 Investments accounted for using the equity method 2.8 2.8 Trade and other receivables 0.2 0.4 Deferred tax assets 33.8 31.6 309.9 278.8 Current assets Trade and other receivables 102.6 123.8 Financial assets - derivative financial instruments - 0.3 Current tax assets 1.5 0.4 Cash and cash equivalent assets 68.5 49.6 172.6 174.1 Total assets 1 482.5 452.9 Non current liabilities Financial liabilities - borrowings (144.4) (155.0) Deferred tax liabilities (1.6) (2.8) Retirement benefit obligations 11 (65.3) (48.1) Provisions (3.4) (3.3) (214.7) (209.2) Current liabilities Financial liabilities - borrowings (8.0) (3.1) Financial liabilities - derivative financial instruments (0.6) (1.3) Current tax liabilities (9.3) (8.6) Trade and other payables (196.5) (179.5) Provisions (5.7) (1.2) (220.1) (193.7) Total liabilities (434.8) (402.9) Net assets 47.7 50.0 Capital and reserves attributable to equity Shareholders Share capital 3.1 3.1 Share premium 172.2 171.9 Other reserves 12 24.1 5.3 Retained earnings 12 (155.2) (132.8) 44.2 47.5 Minority interests 13 3.5 2.5 Total equity 47.7 50.0 Hogg Robinson Group plcConsolidated Cash Flow Statement Years endedFor the year ended 31 March 2009
31 March Notes 2009 2008 £m £mCash flows from operating activities Cash generated from operations 14 65.2 40.1 Interest paid (8.6) (11.5) Tax paid (3.8) (6.0) Cash flows from operating activities - net 52.8 22.6
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired (0.3) (4.3) Disposals of associates, joint ventures and other investments 0.4 0.7 Purchase of property, plant and equipment (5.4) (4.9) Purchase of intangible assets (4.1) (2.9) Proceeds from sale of property, plant and equipment 0.1 - Interest received 1.4 1.5 Dividends received from associates and joint ventures 0.3 0.2 Cash flows from investing activities - net (7.6) (9.7)
Cash flows from financing activities
Repayment of borrowings (34.0) (41.6) New borrowings 15.0 29.0 Issue costs of new borrowings - (0.1) Cash effect of currency swaps (3.9) (3.4) Issue costs of shares - (0.1) Employee Benefits Trust 12 - (1.6) Dividends paid to external shareholders (12.0) (11.6) Dividends paid to minority interests (0.8) (1.3) Cash flows from financing activities - net (35.7) (30.7) Net increase / (decrease) in cash and cash equivalents 9.5 (17.8) Years ended 31 March 2009 2008 £m £m Net increase / (decrease) in cash and cash equivalents 9.5 (17.8) Cash and cash equivalents at beginning of the year 48.5 60.1 Exchange rate effects 5.3 6.2 Cash and cash equivalents at end of the year 63.3 48.5 Cash and cash equivalent assets 68.5 49.6 Overdrafts (5.2) (1.1) 63.3 48.5 Hogg Robinson Group plcConsolidated Statement of Recognised Income and Expense
For the year ended 31 March 2009
Years ended 31 March Notes 2009 2008 £m £m Profit for the year 9.1 17.5 Income and expense recognised directlyin equity Currency translation differences 17.6 3.3 Actuarial (loss) / gain 11 (23.4) 5.1 Deferred tax movement on pension liability 5.9 (1.6) Reduction in deferred tax asset recognised on the pension - (1.6) liability attributable to tax rate changes 0.1 5.2
Total recognised income and expense 9.2 22.7
Attributable to:
Equity Shareholders of the Company 7.5 21.9 Minority interests 13 1.7 0.8 9.2 22.7
Additional Financial Information
General information and basis of preparation
The financial information which comprises the Consolidated IncomeStatement, the Consolidated Balance Sheet, the Consolidated Cash FlowStatement and the Consolidated Statement of Recognised Income and Expense andrelated notes do not constitute full statutory accounts within the meaning ofs240 of the Companies Act 1985. The auditors have reported on the Group'sstatutory accounts for each of the years ended 31 March 2008 and 31 March 2009under s235 of the Companies Act 1985, which do not contain statements unders237(2) or s237(3) of the Companies Act 1985 and are unqualified. Thestatutory accounts for the year ended 31 March 2008 have been delivered to theRegistrar of Companies and the statutory accounts for the year ended 31 March2009 will be filed with the registrar in due course.The Consolidated Financial Statements have been prepared incompliance with International Financial Reporting Standards (IFRS) as adoptedby the European Union, International Financial Reporting InterpretationsCommittee (IFRIC) interpretations and with those parts of the Companies Act1985 applicable to companies reporting under IFRS. The consolidated financialstatements have been prepared under the historical cost convention, asmodified by the use of valuations for certain financial instruments,share-based payment incentives and retirement benefits.
Critical accounting policies and forward-looking statements
The preparation of the IFRS financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the year.
This Financial Review should be read in conjunction with the audited Consolidated Financial Statements. The discussions contain forward-looking statements that appear in a number of places and include statements regarding HRG's intentions, beliefs or current expectations concerning, among other things, results of operations, revenue, financial condition, liquidity, growth, strategies, new products and the markets in which HRG operates. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties.
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, includingHRG's share of results of associates and joint ventures but before net financecosts, 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. EBITDA as usedin this announcement is not necessarily comparable to other similarly titledcaptions of other companies due to potential inconsistencies in the method ofcalculation and are unaudited line items but are derived from auditedfinancial information. The Directors use underlying operating profit andEBITDA to assess HRG's operating performance and to make decisions aboutallocating resources among various geographic segments.
1 Business and geographical segments
Business segmentation
All revenue, operating profit, assets and liabilities, capital expenditure, depreciation and amortisation from continuing operations are derived from the Group's primary business segment, Business Travel.
Geographical segmentation
Segment information is provided for geographical regions reflecting the principal economic environments in which the Group operates.
External revenue from clients by origin (where the Group entity is located)
Years ended 31 March 2009 2008 £m £m Central - - Other Europe 260.3 247.8 Europe 260.3 247.8 North America 71.3 65.3 Asia Pacific 19.7 19.1 351.3 332.2
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 / (loss) Years ended 31 March 2009 2009 2009 2009 2008 2008 2008 2008 Total Total Underlying Amortisation operating Underlying Amortisation operating operating of acquired Exceptional profit / operating
of acquired Exceptional profit /
profit intangibles items (loss) profit
intangibles items (loss)
£m £m £m £m £m £m £m £m Central 0.0 - Other Europe 24.9 36.2 Europe 31.9 (2.7) (4.3) 24.9 34.9
(2.3) 3.6 36.2
North America 1.3 (0.7) (1.3) (0.7) 1.6
(0.5) (2.4) (1.3)
Asia Pacific 1.4 (0.3) - 1.1 1.4 (0.3) - 1.1 34.6 (3.7) (5.6) 25.3 37.9 (3.1) 1.2 36.0
Earnings before interest and taxation (EBIT)
Years ended 31 March 2009 2009 2009 2009 2008 2008 2008 2008 Amortisation Amortisation Underlying of acquired Exceptional Total Underlying
of acquired Exceptional Total
EBIT intangibles items EBIT EBIT
intangibles items EBIT
£m £m £m £m £m £m £m £m Central 0.0 Other Europe 24.9 36.2 Europe 32.1 (2.7) (4.3) 25.1 35.1
(2.3) 3.6 36.4
North America 1.3 (0.7) (1.3) (0.7) 1.6
(0.5) (2.4) (1.3)
Asia Pacific 1.3 (0.3) - 1.0 1.3 (0.3) - 1.0 34.7 (3.7) (5.6) 25.4 38.0 (3.1) 1.2 36.1
Total assets by geographical location
Years ended 31 March 2009 2008 £m £m Europe 277.2 275.1 North America 88.0 80.3 Asia Pacific 13.5 15.9 378.7 371.3 Cash and cash equivalent assets 68.5 49.6 Current tax assets 1.5 0.4 Deferred tax assets 33.8 31.6 482.5 452.9
Capital expenditure by geographical location
Years ended 31 March 2009 2008 £m £m Europe 5.6 5.9 North America 2.9 1.6 Asia Pacific 1.3 0.8 9.8 8.3 2 Operating expenses Years ended 31 March 2009 2008 £m £m Operating expenses before exceptional items: Staff costs (note 3) 208.6 194.2 Amortisation of client relationships 3.4 2.8 Amortisation of other intangible assets 3.4 2.6 Depreciation of property, plant and equipment 4.6 4.4 Auditors' remuneration for audit services 1.7 1.5 Operating lease rentals - buildings 14.6 13.1 Operating lease rentals - other assets 1.9 2.6 Loss on disposal of property, plant and equipment 0.1 0.1 Currency translation differences (0.2) 0.1 Other expenses 82.3 76.0 320.4 297.4 Exceptional items: Restructuring costs: Staff costs (note 3) 6.6 - Other expenses 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 0.8 Settlement of arbitration net of costs: Staff costs (note 3) - (1.5) Other expenses - (2.9) Irrecoverable costs of a long-standing contract - 2.4 5.6 (1.2) Total operating expenses 326.0 296.2 Restructuring costs of £6.9m were incurred during the year. These costs relateto planned cost reduction programmes in Europe and North America. They are inrespect of redundancy costs and onerous lease provisions.
As a result of a review by management, certain unutilised accruals relating to acquisitions in prior years have been released.
The settlement of arbitration net of costs in the the year ended 31 March 2008was with regard to a claim against Kuoni Reisen Holding AG, former owners ofcompanies acquired by the Group, for a breach of the relevant sale andpurchase agreement. Tax expense in respect of this was £nil.An exceptional accrual of £2.4m in the year ended 31 March 2008 was made tocover estimated irrecoverable amounts under a long-standing contract in NorthAmerica.3 Staff costs Years ended 31 March 2009 2009 2009 2008 2008 2008 Before Before exceptional Exceptional exceptional Exceptional items items Total items items Total £m £m £m £m £m £m Salaries 175.0 - 175.0 161.8 - 161.8 Social security costs 21.4 - 21.4 20.1 - 20.1 Pension costs 9.9 -
9.9 9.0 (1.5) 7.5
Redundancy and termination costs 1.1 6.6
7.7 2.6 - 2.6 Share-based incentives 1.2 - 1.2 0.7 - 0.7 208.6 6.6 215.2 194.2 (1.5) 192.7
Pension costs comprise:
Defined benefit schemes (note 11) 3.4 - 3.4 3.9 - 3.9 Defined contribution schemes 6.5 - 6.5 5.1 - 5.1 Exceptional pension credit (note 11) - - - - (1.5) (1.5) 9.9 - 9.9 9.0 (1.5) 7.5 Years ended 31 March 2009 2008 restated
number number
Average monthly number of staff employed by
the Group including key management:
Business Travel
6,236 6,350
Average monthly number of staff employed by the Group including key managementhas been restated in the year ended 31 March 2008 to reflect full timeequivalent staff numbers.4 Finance income and finance costs Years ended 31 March 2009 2008 £m £m
Finance income - bank interest 1.3 1.5 Interest on bank overdrafts and loans (9.6) (11.4) Amortisation of issue costs on bank loans (0.4) (0.5) Interest on obligations under finance leases - (0.0)
Expected return on pension scheme assets less
interest cost on pension scheme liabilities (1.2) (0.4) Interest rate caps - - Other finance charges
(0.1) (0.1) Finance costs (11.3) (12.4) Net finance costs (10.0) (10.9) 5 Income tax expense Years ended 31 March 2009 2008 £m £m Current tax:
Tax on profits of the year 3.8 4.3 Adjustments in respect of previous years (0.9) 0.6 Total current tax 2.9 4.9 Deferred tax: Origination and reversal of temporary differences 2.2 2.5 Adjustments in respect of previous years 1.4 - Net impact of rate change on deferred tax balances - 0.9 Adjustments to goodwill on recognition of deferred tax assets (0.2) (0.6) Total deferred tax 3.4 2.8 Taxation charge 6.3 7.7 The tax charge is split as follows: Years ended 31 March 2009 2008 £m £m United Kingdom 4.7 5.6 Overseas 1.8 2.7 Adjustments to goodwill on recognition of deferred tax assets (0.2) (0.6) Taxation charge 6.3 7.7 Years ended 31 March 2009 2008 £m £m On recurring business 7.7 7.9 Tax rate changes - 0.9 Exceptional items (1.4) (1.1) Taxation charge 6.3 7.7 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 2009 2008 £m £m
Earnings for the purposes of earnings per share:
Profit for the year from continuing operations 9.1 17.5 Less: amount attributable to minority interest (1.7) (0.8) Continuing operations 7.4 16.7 Years ended 31 March Weighted average number of Ordinary shares 2009 2008 restated number number m m Issued (for basic EPS) 304.2 304.9 Dilutive potential Ordinary shares 4.5 3.8 For diluted EPS 308.7 308.7
The weighted average number of issued Ordinary shares is lower in the year ended 31 March 2009 compared to the year ended 31 March 2008 due to the impact of the shares purchased by the Employee Benefits Trust.
The Directors have reviewed the calculation of the number of dilutive potential Ordinary shares and have restated the comparatives.
The Employee Benefits Trust waived its right to dividends.
7 Dividends per share
The dividends to the Company's shareholders in the year ended 31 March 2009were: Years ended 31 March 2009 2008 £m £m Final dividend in respect of year ended 31 March 2008 2.8p per share (31 March 2007 2.8p per share) 8.6 8.5 Interim dividend in respect of year ended 31 March 2009 1.2p per share (31 March 2008 1.2p per share) 3.7 3.7 Total dividends to the Company's shareholders (note 12) 12.3 12.2 Scrip dividends to the value of £0.1m in respect of the interim dividend forthe year ended 31 March 2009 and to the value of £0.2m in respect of the finaldividend for the year ended 31 March 2008 were taken instead of a cashpayment.
No final dividend in respect of the year ended 31 March 2009 is to be proposed at the Annual General meeting on 29 July 2009.
8 Goodwill and other intangible assets
Years ended 31 March 2009 2008 £m £m Goodwill 225.6 203.1 Other intangible assets 32.4 28.3 258.0 231.4 Other intangible assets Computer Goodwill software Client Total Externally Internally relationships acquired generated £m £m £m £m £mAt cost At 1 April 2007 217.7 13.9 4.6 27.4 263.6 Acquisitions 2.5 - - - 2.5 Additions - 1.4 1.5 - 2.9 Adjustments to goodwill on recognition of tax assets (0.8) - - - (0.8) Exchange differences 10.1 0.9 - 4.0 15.0 At 31 March 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
Accumulated amortisation and impairment
At 1 April 2007 26.4 8.0 2.0 7.5 43.9 Amortisation charge for the year - 1.6 1.0 2.8 5.4 Exchange differences - 0.9 - 1.6 2.5 At 31 March 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 Carrying amount At 1 April 2007 191.3 5.9 2.6 19.9 219.7 At 31 March 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 The recoverable amount used in the assessment of goodwill for allcash generating units comprises value in use. During the year the Groupreviewed its discount rate and long term growth rates and these have beenapplied in the assessment. The value in use has been calculated by discountingat 10% (2008: 7.5%) the anticipated post-tax cash flows. This equates to apre-tax discount rate of 10.7%. The forecasts are prepared from managementinformation taking into account historical trading performance and anticipatedchanges in future market conditions. The detailed forecasts cover a period ofthree years from the balance sheet date; cash flows are projected beyond thatperiod based on anticipated long-term growth of 2% (2008: 2%).The amortisation charge for the year of £6.8m (2008: £5.4m) iscomprised of £3.7m (2008: £3.1m) in respect of intangible assets acquired viabusiness combinations and £3.1m (2008: £2.3m) which relates to amortisation ofsoftware purchased and internally generated by existing businesses.
Goodwill consists of the following amounts related to cash generating units of the Group in the Business Travel sector:
Years ended 31 March 2009 2008 restated £m £m UK 56.9 56.9 Sweden 14.6 14.6 Norway 17.9 17.9 Germany 47.4 41.0 Switzerland 19.6 16.2 North America 48.1 36.5 Other 21.1 20.0 225.6 203.1 Analysis of goodwill by cash generating unit for the year ended 31 March 2008has been restated to show USA and Canada as a single cash generating unitunder North America. In addition, goodwill relating to the Spendvisionacquisition in the year ended 31 March 2008 has been reallocated from UK toOther.9 Property, plant and equipment Plant and Property equipment Total £m £m £mAt cost At 1 April 2007 8.8 38.2 47.0 Additions for the year 1.2 4.2 5.4 Disposals for the year (0.9) (8.8) (9.7) Exchange differences 0.2 5.3 5.5 At 31 March 2008 9.3 38.9 48.2 Additions for the year 0.5 5.2 5.7 Acquisitions through business combinations - - - Disposals (0.2) (3.1) (3.3) Exchange differences 1.0 5.4 6.4 At 31 March 2009 10.6 46.4 57.0 Accumulated depreciation At 1 April 2007 5.1 31.1 36.2 Depreciation charge for the year 0.9 3.5 4.4 Disposals for the year (0.9) (8.3) (9.2) Exchange differences 0.1 4.1 4.2 At 31 March 2008 5.2 30.4 35.6 Depreciation charge for the year 0.9 3.7 4.6 Disposals (0.1) (2.8) (2.9) Exchange differences 0.6 4.0 4.6 At 31 March 2009 6.6 35.3 41.9 Carrying amount At 1 April 2007 3.7 7.1 10.8 At 31 March 2008 4.1 8.5 12.6 At 31 March 2009 4.0 11.1 15.1
Property is comprised of leasehold properties and leasehold improvements. Plant and equipment is comprised of IT and office equipment.
Years ended 31 March 2009 2008 £m £m
Contractual commitments for the acquisition of :
Property, plant and equipment 1.5 - Intangible assets 0.1 - Carrying amount of property, plant and equipmentheld under finance leases 0.5 0.4 10 Net debt Years ended 31 March 2009 2008 £m £m
Total financial liabilities - borrowings 152.4
158.1
Add back: Unamortised loan issue costs 1.4
1.9
Cash and cash equivalent assets (68.5)
(49.6) Net debt 85.3 110.4
Analysis by currency after currency swaps
Years ended 31 March 2009 2008 £m £m Sterling 66.2 56.2Euro (15.1) (18.5)Swiss Franc 14.9 16.5Other European currencies (1.2) 24.5Canadian Dollar 18.2 18.4US Dollar (0.8) 9.6Other currencies 3.1 3.7 85.3 110.4
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 UK employees until it was closed to new members in March 2003. Its benefits are based on final pensionable salary. The increase in final pensionable salary since 31 March 2003 is limited to the lower of the increase in the Retail Prices Index and 5% per annum. The latest actuarial valuation of the scheme was carried out 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 2009 2008 £m £m Current service charge 3.4 3.9 Exceptional pension credit - (1.5) Charge to operating profit 3.4 2.4
Interest cost on pension scheme liabilities 16.1
14.1
Expected return on pension scheme assets (14.9)
(13.7) Charge to finance costs 1.2 0.4
Total charge to Consolidated Income Statement 4.6
2.8
The following amounts have been recognised as movements in equity:
Years ended 31 March 2009 2008 £m £m
Actual return on scheme assets (31.4)
(4.6)
Less: expected return on scheme assets (14.9)
(13.7)
(46.3)
(18.3)
Experience gains and losses arising onscheme liabilities 2.5
(2.3)
Changes in assumptions underlying thepresent value of scheme liabilities 21.9 27.2Exchange rate movement (1.5) (1.5) Movement in the year (23.4) 5.1
Cumulative amount recognised in the Consolidated
Statement of Recognised Income and Expense since the transition date to IFRS, 1 April 2003 (2.0)
21.4
The key assumptions used for the UK Scheme were:
Years ended 31 March 2009 2008 2007 Rate of increase in salary 4.00% 4.60% 4.30%
Rate of increase in final pensionable salary 2.70% 3.30% 3.00%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 2.70% 3.30% 3.00%Discount rate 6.70% 6.30% 5.30%Inflation 2.70% 3.30% 3.00% Expected rate of return on plan assets:Equity instruments 7.20% 8.00% 7.00%Debt instruments 6.70% 5.30% 5.00%Property 7.20% 8.00% 7.00%Other assets 5.00% 5.40% 5.81%
The assumptions for the schemes in Norway, Switzerland, Germany and Italy do not produce materially different results from the assumptions used for the UK Scheme.
The expected rates of return have been set taking into account current market returns for each category of asset at the balance sheet dates.
The mortality assumptions for the UK Scheme are based on PMA/FA92tables with `medium cohort' projections and a 1% underpin in the rate offuture improvements in mortality. Life expectancy at the age of 65 is assumedto be: Years ended 31 March 2009 2008Current PensionersMale 22.6 22.0Female 25.9 24.9 Future retirementsMale 24.1 22.9Female 27.5 25.7
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 2009 2008 £m £m
Present value of defined benefit obligations
Unfunded scheme 8.9 7.5 Wholly or partly funded schemes 254.1 261.9 263.0 269.4Fair value of scheme assets (197.7) (221.3) 65.3 48.1
The net present value of defined benefit obligations has moved as follows:
Years ended 31 March 2009 2008 £m £m At beginning of year 269.4 274.8Current service cost 3.4 3.9Interest cost 16.1 14.1
Contributions by plan participants 1.6
1.5
Actuarial gains (24.4)
(24.9)
Foreign currency exchange changes 6.8
5.9Benefits paid (9.9) (5.9) At end of year 263.0 269.4
The fair value of scheme assets has moved as follows:
Years ended 31 March 2009 2008 £m £m At beginning of year 221.3 214.9
Expected returns on plan assets 14.9
13.7
Actuarial losses (46.3)
(18.3)
Foreign currency exchange changes 5.3
4.4
Contributions by the employer 10.8
11.0
Contributions by plan participants 1.6
1.5Benefits paid (9.9) (5.9) At end of year 197.7 221.3
The assets held in defined benefit schemes were as follows:
Years ended 31 March 2009 2008 £m £m Equity instruments 110.5 109.2Debt instruments 62.7 65.0Property 12.5 16.7Other assets 12.0 30.4 197.7 221.3
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 agreedwith the Trustees at 15.2% of pensionable salaries plus £6.6m per annum witheffect from April 2008. This is expected to amount to £8.9m for the yearending 31 March 2010. It was intended that the schedule of contributions willeliminate the deficit on the UK Scheme over ten years from April 2006.
The obligations and assets are split as follows:
Years ended 31 March 2009 2009 2009 2008 2008 2008 UK Overseas Total UK Overseas Total £m £m £m £m £m £m
Defined benefit obligations (223.0) (40.0) (263.0) (235.4)
(34.0) (269.4)Fair value of plan assets 171.7 26.0 197.7 196.8 24.5 221.3 Deficit (51.3) (14.0) (65.3) (38.6) (9.5) (48.1) Five year experience Years ended 31 March 2009 2008 2007 2006 2005 £m £m £m £m £m
Defined benefit obligations (263.0) (269.4) (274.8) (310.2)
(309.9)
Fair value of plan assets 197.7 221.3 214.9 185.7
158.8 Deficit (65.3) (48.1) (59.9) (124.5) (151.1) Experience gains/(losses)on plan liabilities 2.5 (2.3) (3.6) (1.8) (2.1)on plan assets (46.3) (18.3) 4.0 22.4 5.0
Pension funding in excess of charge to operating profit is shown in the Consolidated Cash Flow Statement as follows:
Years ended 31 March 2009 2008 £m £m
Contributions less service cost (note 14) (7.2)
(6.5) 12 Reserves Retained earnings Years ended 31 March 2009 2008 £m £m At 1 April (132.8) (137.6) Retained profit for the year 9.1
17.5
Dividends paid (note 7) (12.3)
(12.2)
Minority interest (1.7)
(0.8)
Shares held by Employee Benefit Trust -
(1.6)
Actuarial (loss) / gain (23.4)
5.1
Deferred tax movement on pension liability 5.9 (3.2) At 31 March (155.2) (132.8) Other reserves Share- Foreign based exchange incentives reserve reserve Total £m £m £m At 1 April 2007 1.1 0.2 1.3 Currency translation differences 3.3 - 3.3 Share-based incentives - 0.7 0.7 At 1 April 2008 4.4 0.9 5.3 Currency translation differences 17.6 - 17.6 Share-based incentives - 1.2 1.2 At 31 March 2009 22.0 2.1 24.1 13 Minority interests Years ended 31 March 2009 2008 £m £m At 1 April 2.5 2.9 Exchange differences 0.1 0.1 Dividends paid (0.8)
(1.3)
Share of profit after tax 1.7 0.8 At 31 March 3.5 2.5
14 Cash generated from operations
Years ended 31 March 2009 2008 £m £m
Profit before tax from continuing operations
15.4 25.2
Adjustments for:
Depreciation and amortisation (note 8 and 9) 11.4 9.8 Net increase in provisions 7.2 3.0 Share of results of associates and joint ventures (0.1) (0.1) Net finance costs (note 4) 10.0 10.9 Adjustments to goodwill on recognition of tax assets (note 2) 0.3 0.8 Exceptional pension credit - defined benefit schemes (note 3) - (1.5) Other timing differences 0.9 0.6 45.1 48.7
Cash expenditure charged to provisions
(3.2) (2.8)
Change in trade and other receivables
27.3 (6.0)
Change in trade and other payables
3.2 6.7
Pension funding in excess of charge to operating profit (note 11) (7.2) (6.5)
Cash generated from operations
65.2 40.1
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