HOGG ROBINSON GROUP PLC. July 2014

Transcription

1 HOGG ROBINSON GROUP PLC July 2014

2 CONTENTS Pages Introduction to Hogg Robinson Group 3-10 Business model and competitive advantages 3 Strategy 4 Financial performance 5 KPIs 6 Clients and contracts 7 Target markets 8 Actions in FY14 9 Investment case summary 10 Appendices

3 BUSINESS MODEL AND COMPETITIVE ADVANTAGES HRG is an international corporate services company specialising in travel, expense and data management underpinned by proprietary technology BUSINESS MODEL B2B no retail Fee-based, outsourced services Multi-year contracts No principal risk on travel products Client-focused culture Focus on multinational corporates and large national organisations COMPETITIVE ADVANTAGES Size and scope Proprietary technology Flexible service offering People HELPING CLIENTS GAIN BETTER VALUE FROM THEIR TRAVEL AND RELATED EXPENDITURE 3

4 AN EVOLVING BUSINESS, AN EVOLVING STRATEGY Managed travel To grow our managed travel business by Increasing our business from existing clients with new service offerings Entering new markets Winning new business by leveraging our technology and service delivery Software as a Service (SaaS) To develop a SaaS business focused on providing travel, expense and payment solutions to existing and new clients, either direct or through third party travel and payment providers 4

5 HRG FINANCIAL PERFORMANCE Years ended 31 March Revenue ( m) Underlying profit before tax ( m) 1, Underlying operating profit margin (%) 2 Net debt ( m) 20% 10% 0% 10.8% 11.7% 12.6% 14.2% 14.5% Dividend per share (p) Return on capital employed (%) % 20% 10% 16.9% 19.4% 22.5% 22.3% 23.3% % (1) Underlying operating profit figure for 2013 is restated on adoption of the revised International Accounting Standard 19, Employee Benefits (2) Before amortisation of acquired intangibles and exceptional items (3) Return on capital employed is calculated by dividing underlying operating profit plus net share of the results of associates and joint ventures by average net assets 5

6 KEY PERFORMANCE INDICATORS Grow revenue Range 2-4% per annum Reconfigure operational infrastructure Lower cost base Align with projected growth in online usage Maintain underlying operating margins Range % Reduce net debt Net debt / EBITDA in range x Progressive dividend 6

7 CLIENTS AND CONTRACTS (1) Client portfolio includes: Revenue by client sector (1) SME 11% Banking & Finance 17% Stable and diverse blue chip, multinational client portfolio Multi-year contracts and longterm relationships Good sector spread Other 14% Manufacturing 12% Engineering 3% Media & Entertainment 3% Consulting 5% Pharma & Healthcare 10% Energy (incl Oil & Gas) 7% Government 9% Retail & Consumer Goods 9% (1) Data per 2014 Annual Report 7

8 TARGET MARKETS WTTC growth forecast for global corporate travel spend in CY is 4% per annum (1) Europe 3% per annum North America 3% per annum Expense management market predicted to grow by in CY % per annum (2) Travel management Expense management (1) World Travel & Tourism Council, March 2014 (2) HRG estimate 8

9 FINANCIAL ACTIONS IN FY14 Lower cost base to reinvest in operations Targeted annualised savings 6.5m Cost to achieve: FY14 7.0m as an exceptional item Reduce locations Streamline back office functions Optimise call centre and online services Closure of UK defined benefit pension scheme to future accrual Reduces volatility of scheme Positive benefit as economic cycle changes Continue net debt reduction Target x net debt / EBITDA At 31 March 2014, 1.1x 21.7m reduction in net debt during FY14 Progressive dividend Dividend increased by 5% 9

10 INVESTMENT CASE SUMMARY High quality earnings 5-year track record of improved profit margins, against revenue headwinds Cash backed Cyclical recovery for revenues in prospect / underway With more positive economic indicators in North America and UK; RoW still too early to call Technology mix (SaaS) adding potential for revenue and profit growth Timeline is 2+ years away Reducing leverage cash flow being used to reduce debt Pension liability being addressed Progressive dividend policy, backed by healthy cover ratio 10

11 Appendices

12 Extracts from FY14 results presentation

13 ROBUST FINANCIAL RESULTS DELIVERED BY GLOBAL PORTFOLIO Revenue 340.8m -1% Underlying operating profit margin (2) 14.5% +0.3 pp Underlying PBT 35.8m +3% (1) (2) Underlying EPS 7.8p unchanged (1) (2) Free cash inflow (3) 24.8m m Net debt 65.3m m Dividend per share 2.21p +5% Dividend cover 3.5 times -0.2 times Good progress made towards strategic goals Momentum building in key focus markets Balance sheet deleveraging accelerated New long-term financing in place Growth in underlying PBT despite flat revenue; client travel activity up 8%; travel spend up 5% at constant currency (1) Profit before tax and earnings per share figures are restated on adoption of the revised International Accounting Standard 19, Employee Benefits (2) Before amortisation of acquired intangibles and exceptional items (3) Free cash flow is the change in net debt before acquisitions and disposals, Employee Benefits Trust purchases, dividends and the impact of foreign exchange movements 13

14 CASH FLOW Years ended 31 March 2014 m 2013 m EBITDA (1) Cash outflow from exceptional items (3.0) - Working capital movements - Normal trading 6.2 (5.4) - Active management - (31.4) Interest (2) (5.3) (6.4) Refinancing costs (1.7) - Tax (4.2) (5.7) Capital expenditure (14.3) (9.7) Additional pension contributions (10.3) (9.8) Other movements (2.8) (2.2) Free cash inflow/(outflow) 24.8 (10.5) Acquisitions and disposals Employee Benefits Trust purchases - (8.1) Dividends (6.7) (6.2) Currency translation 2.3 (1.2) Decrease/(increase) in net debt 21.7 (26.0) (1) Earnings Before Interest, Taxation, Depreciation and Amortisation (EBITDA) is before exceptional items (2) Includes dividends received from associates and joint ventures 25% reduction in net debt Other working capital changes due to normal trading patterns Dividends are the final 2013 and interim 2014 payments 14

15 NET DEBT DOWN REFINANCING COMPLETED SUCCESSFULLY 150m RCF committed to May 2018 Used for loans, letters of credit and guarantees Interest based on inter bank for appropriate currency plus a margin 30m fixed rate loan repayable by % fixed rate Covenants compliance is secure Net debt : EBITDA (1) Net debt at 31 March Net debt ( m) Active working capital management ( m) (1) Earnings before interest, tax, depreciation and amortisation (EBITDA) is before exceptional items (2) The definition for EBITDA for covenant purposes is not materially different to the definition used in the financial statements 15

16 BALANCE SHEET As at 31 March 2014 m 2013 m Goodwill and other intangible assets PPE and investments Working capital (56.4) (50.4) Current tax liabilities (net) (5.8) (5.2) Deferred tax assets (net) Net debt (65.3) (87.0) Pension liabilities (pre-tax) (180.4) (159.4) Provisions and other items (5.1) (3.6) Net liabilities (20.9) (5.1) Major net asset changes from: Pension liabilities m Working capital - 6.0m Net debt m Pension deficit: 147.2m after tax (2013: 126.4m) UK pre-tax deficit up 19.8m 16

17 CONTINUING PROGRESS Providing a strong platform for growth New clients added in FY14 include Recently renewed and expanded contracts include 17

18 STRATEGIC PRIORITIES PROGRESS UPDATE Grow our managed travel business Strategic focus areas Result FY14 Progress Increase our business with existing clients through new service offerings Entering new markets Winning new business by leveraging our technology and service delivery Meetings, Groups and Events (MGE) Tesco Thomson Reuters Vodafone Willis Specialised travel logistics serving marine, offshore and energy sectors ConocoPhillips DOF Marine Statoil Tullow Oil Government of Canada 18

19 STRATEGIC PRIORITIES PROGRESS UPDATE cont d Develop a Software as a Service (SaaS) business Strategic focus areas Result FY14 progress Direct route to market Corporates National organisations Launch new end-to-end travel and expense management products Indirect route to market through third-party travel and payment providers Global Distribution Service (GDS) providers Financial services organisations Government of Canada Planned increase in investment in sales and marketing during FY15 Provision of Spendvision expense management tools on a white-label basis Lloyds Banking Group Financial services client revenue grew 17% year-on-year at constant currency 19

20 SUMMARY & OUTLOOK Good progress made on strategic priorities Grown our managed travel business through new service offerings, entering new markets and leveraging our technology Successful implementation for Government of Canada Underlying PBT (1) (2) up 3%; growth in margin despite lower revenue 25% reduction in net debt Full-year dividend up 5% - progressive dividend policy Outlook Good progress against strategic priorities provides base for accelerated growth Expect to make further progress through the rest of the year (1) Profit before tax and earnings per share figures are restated on adoption of the revised International Accounting Standard 19, Employee Benefits (2) Before amortisation of acquired intangibles and exceptional items 20

21 PENSION PLANS Group pre-tax deficit ( m) (1) % Group-wide deficits of 180.4m up 21.0m UK deficit up 19.8m Discount rate reduction of 0.3% added 25.3m No changes to mortality assumptions 54% investment in equities Defined benefit section closed to future accrual (30 June 2013), replaced by a defined contribution section Next triennial valuation effective April 2014 Anticipated to be completed in FY % 6.5% 6.0% 5.5% 5.0% % % Pre-tax pension deficits ( m) UK scheme discount rate (1) At 31 March 21

22 Strategic priorities and SaaS model

23 STRATEGIC PRIORITIES NEXT THREE YEARS Grow our managed travel business Increase our business with existing clients through new service offerings Increase share of meetings, groups and events Data analytics Consulting Payment card Entering new markets Logistics Winning new business by leveraging our technology and service delivery Government sector Launch new end-to-end travel and expense management products 23

24 STRATEGIC PRIORITIES NEXT THREE YEARS cont d Develop a SaaS business Direct route to market Corporates National organisations Launch new end-to-end travel and expense management products Indirect route to market through third-party travel and payment providers GDSs Financial services organisations 24

25 SOFTWARE AS A SERVICE (SAAS) FROM a portfolio of separate products TO an integrated platform, while maintaining a modular, independent service offering. 25

26 Contract structures

27 ONLINE FEE CLASSIC FEE CONTRACT STRUCTURES Transaction Fee HRG s revenue is directly related to client activity Closed book agreement Important for HRG to manage its cost base in line with client activity Move from dedicated to shared service structure gives more scope to flex costs in line with changes to client activity Increasingly, HRG is taking control of service location decision Lower manpower proportion of cost base reduces risk associated with changes in client travel activity All client contracts have a transaction fee element 86% of client revenue is predominantly transaction fee based; growing trend 27

28 TRANSACTION FEE MANAGEMENT FEE CONTRACT STRUCTURES Cost Plus / Management Fee Smaller proportion of HRG s revenue related to client activity Open book agreement Partnership approach with client Lower risk to HRG as costs are always covered 12% of client revenue generated from a cost plus / management fee arrangement; declining trend Profit on the management fee may be agreed on basis of, for example: % of costs Per transaction % of spend Fixed amount Value activity linked to an SLA Profit earned from outset 28

29 ONLINE FEE CLASSIC OPERATING COST CONTRACT STRUCTURES Savings / Incentive Agreement Profit element is extracted and isolated, and partly based on, for example: Supplier savings targets Business plan objectives Service level agreement Percentage reduction in overall travel expenditure Closed book 2% of client revenue on basis of savings/incentive agreement a growing trend Suits the larger client HRG aims to increase the proportion of its clients on this style of contract HRG has competitive advantage with this style of contract 29

30 Miscellaneous

31 THEN AND NOW Founded in 1845 by brothers-in-law Francis Hogg, a wine merchant, and Augustus Robinson, an insurance broker Previously a very diversified Plc - travel, transport and financial services Taken private in 2000 and re-listed in 2006 Today a focused international corporate services company specialising in travel, expense and data management underpinned by proprietary technology Senior management team has average of over 20 years individual experience in the corporate travel management industry 31

32 BOARD COMPOSITION Non-Executive Chairman: John Coombe Formerly CFO at GlaxoSmithKline Non-Executive Director at HSBC Holdings and Chairman of Home Retail Group Chief Executive: David Radcliffe At HRG since 1978, CEO since 1997 Non-Executive Director of Wincanton Group Finance Director: Philip Harrison Formerly Group FD at VT Group; senior international finance roles at Hewlett Packard, Compaq, Rank Xerox and Texas Instruments Chief Operating Officer: Kevin Ruffles Joined HRG in 1972 Non-Executive Director: Tony Isaac Formerly CEO at BOC and Non-Executive Director at HRG until the MBO Non-Executive Chairman of Schlumberger Non-Executive Director: Paul Williams Formerly responsible for HR at NCR, Heinz, Glaxo, Rolls-Royce and Smith & Nephew Member of the Senior Salaries Review Body (SSRB) and a member of the Governing Council of Aston University 32

33 CONTACT DETAILS HOGG ROBINSON GROUP PLC Global House Victoria Street Basingstoke Hampshire RG21 3BT UK +44 (0) Angus Prentice Head of Investor Relations 33

34 DISCLAIMER This presentation is being made only to and directed at (a) persons who have professional experience in matters relating to investments falling within Article 19 (1) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the FPO ) or (b) high net worth entities, and other persons to whom it may otherwise lawfully be communicated, falling within Article 49 (1) of the FPO (all such persons together being referred to as relevant persons ). Any person who is not a relevant person should not act or rely on this presentation or any of its contents. This presentation may contain forward-looking statements with respect to certain of the plans and current goals and expectations relating to the future financial conditions, business performance and results of Hogg Robinson Group plc (HRG). By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of HRG, including amongst other things, HRG s future profitability, competition with the markets in which the Company operates and its ability to retain existing clients and win new clients, changes in economic conditions generally or in the travel and airline sectors, terrorist and geopolitical events, legislative and regulatory changes, the ability of its owned and licensed technology to continue to service developing demands, changes in taxation regimes, exchange rate fluctuations, and volatility in the Company s share price. As a result, HRG s actual future financial condition, business performance and results may differ materially from the plans, goals and expectations expressed or implied in these forward-looking statements. HRG undertakes no obligation to publicly update or revise forward-looking statements, except as may be required by applicable law and regulation (including the Listing Rules). No statement in this presentation is intended to be a profit forecast or be relied upon as a guide to future performance. 34