HOGG ROBINSON GROUP PLC Half-Year Report and Financial Statements 2008/09

Transcription

1 HOGG ROBINSON GROUP PLC Half-Year Report and Financial Statements 2008/09

2 Contents Half-year Results for the Six Months Ended 30 September Management Review... 4 Additional Financial Disclosures... 8 Consolidated Income Statement Consolidated Balance Sheet Consolidated Cash Flow Statement Consolidated Statement of Recognised Income and Expense Notes to the Condensed Consolidated Half-yearly Financial Information Statement of Directors Responsibilities Independent Review Report Half-Year Report and Financial Statements 2008/09 2

3 27 November 2008 ( HRG, the Company or the Group ) Half-Year Results for the Six Months Ended 30 September 2008 Financial Highlights Revenue growth of 10.8% including organic growth at 1.0% EBIT (1) growth of 8.5%, which at constant exchange rates is unchanged from prior year EBIT margin broadly unchanged at 6.7% Profit before tax up 24.5% to 6.1m, up from 4.9m EPS (basic) from continuing operations up 57.1% to 1.1p Free cash outflow (2) of 2.7m reflecting normal seasonality and similar to last year Interim dividend maintained at 1.2p per share Business Highlights Client retention rate remains above 90% Continued good growth in the client base with net new business wins over the period Solid performance in Europe Early signs of progress in North America, benefiting from previous investments Asia Pacific continues to build scale Spendvision delivered revenue growth of 75% with EBIT up 0.8m Outlook Planning for the macroeconomic climate to be even more challenging, but hopeful of finishing the year within expectations (1) Earnings Before Interest and Taxation, including HRG s after-tax share of results of associates and joint ventures. (2) Free cash flow is the change in net debt before including acquisitions and disposals, dividends, and the impact of foreign exchange movements. David Radcliffe, Chief Executive of Hogg Robinson Group plc, said: Whilst we are by no means immune to the prevailing market conditions, the fundamentals of our business are sound. We are pleased to have delivered a modest increase in profits and are reassured by the fact that our clients continue to travel, albeit in many cases they are travelling differently. Our strategy is to manage the business based on a cautious outlook. We continue to reduce costs whilst being more focused than ever on delivering excellent client service. We are pleased that we continue to win more business than we lose and that our pipeline remains encouraging. In the prevailing macroeconomic climate it is very difficult to predict with any certainty the outcome for the second half of our financial year. Nonetheless, given all that we can see currently in terms of workload, combined with the benefit of our cost and efficiency actions, we remain hopeful of finishing the year within current expectations. This announcement 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. 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 announcement is intended to be a profit forecast or be relied upon as a guide to future performance. Half-Year Report and Financial Statements 2008/09 3

4 Management Review Overview The macroeconomic climate for the last six months has been among the most challenging we have seen. Yet, despite that, and helped by our cost reduction actions, HRG has delivered both revenue and profit growth for the first half of the financial year. Notwithstanding the difficult market conditions, we see two positive drivers to our business: (1) clients are continuing to travel; and (2) increased focus by managed clients on reducing their travel and related expenditure continues to offer opportunities for us to deliver profitable services. Consequently, our client retention rate remained above 90% and we won more business than we lost. Last year we restructured our European operations to improve efficiency and to create a single-market offering for the European region. During the first half of the current financial year we have continued our cost reduction efforts and these additional changes will support our performance in the second half and beyond. For the first half, revenue increased by 10.8% and EBIT increased by 8.5% compared with the prior year. As indicated in June 2008, we have now adopted earnings before interest and taxation (EBIT), which includes HRG s after-tax share of results of associates and joint ventures, as our principal measure of operating performance. Our EBIT margin remained essentially unchanged from the prior year at 6.7%. Basic EPS on continuing operations benefited from a return to a normal tax rate and rose by 57.1%, from 0.7p to 1.1p per share. After adjusting for the positive effect from movements in exchange rates and the acquisition in Belgium in the prior year, the underlying organic growth in revenue was 1.0% and EBIT was unchanged. Free cash outflow of 2.7m reflects the normal seasonality of the business and is similar to the 1.3m outflow in the prior year. Closing net debt of 123m reflects the payment of the 8.4m final dividend for the year ended 31 March Our principal banking facility, a 220m revolving credit line, was negotiated well before the current global financial crisis emerged and is committed until September The Board has declared an unchanged interim dividend of 1.2p per share which will become due and payable on 6 January 2009 to shareholders on the register at 5 December A scrip dividend is again being offered and the relevant documents will be posted to shareholders during December Client activity Ours is a global service offering. We focus on travel management services for large corporate clients and are now concentrating our Events & Meetings Management (EMM) efforts primarily at our large corporate clients. Taken together, these Managed Travel activities represent around 85% of our total revenue, with the remaining 15% coming from unmanaged (SME) and Spendvision. Our client base is very diverse, which reduces the potential impact on the Group from weakness in any single client or sector. Our top ten clients account for 23% of our total revenue and, although Banking is our most important sector, their employee travel accounts for less than 20% of our total revenue. Many of our client relationships are long-standing and have multi-year contracts. As a result of these dynamics, overall trading with our existing Managed Travel clients has been similar to the prior year, although it was ahead in the first quarter but fell behind in the second quarter. This is consistent with other travel industry comments which have indicated a Half-Year Report and Financial Statements 2008/09 4

5 decline in premium travel and forward bookings in recent months. The combined impact of new clients coming on stream and client losses was not material in the first half, but will contribute to the second half results and should help mitigate any reductions in revenue from our existing managed clients. We again delivered net new business wins during the first half and our pipeline of new business prospects remains strong. We continue to win new clients and extend our geographic coverage for existing clients, although it is clear that timetables for client tenders are now longer as a result of the uncertainty in the global marketplace. New clients we secured during the period continue to display the diversity of sector and geography that we regard as one of our key strengths. Amongst new client wins so far this year, we welcome DIRECTV, Lenovo, Nationwide Building Society, Norwegian Department of Foreign Affairs, Smiths Group and Wachovia to our various regions. Technology It is not surprising that demand for technology solutions shows no signs of abating as our clients increasingly seek to reduce service costs. This has given us opportunities to introduce cost saving technology-based products and services, including HRG s self-service reservation (SSR) tools that enable clients to create their own bookings over the internet, with access to a range of products that we work with. These help our clients gain greater compliance when mandating stricter travel policy implementations. Our online hotel booking product is proving very popular and we are now integrating this application with another SSR provider for a large UK client. Demand for our pre-trip reporting suite of information has also increased dramatically, as our clients use it to give them greater sight and control over their expenditure. Development of our Universal Super Platform TM (USP) continues and it is being rolled out across our global network, with one HRG network partner already starting to install USP across its region. When completed, this platform will allow us to offer a range of products suitable to each geographic market from a common base platform, meaning in some cases we will no longer be tied to a fixed method of obtaining inventory. Products are now being deployed from the USP including HRG Online and HRG Point of Sale (Agency Desktop) which will allow the seamless integration of clients process flows with our own. We continue to work with all global distribution systems providers (GDS) on behalf of our clients whilst also developing systems which will in future enable us to access inventory independently when appropriate to do so. We are also working closely with others in the industry to try and establish ways to bring common standards where possible. Half-Year Report and Financial Statements 2008/09 5

6 Operating review The consolidated results are as follows: Group Six months ended 30 September Change Revenue 171.0m 154.4m +10.8% EBIT 11.5m 10.6m + 0.9m EBIT margin 6.7% 6.9% -0.2% Europe Six months ended 30 September Change Revenue 128.1m 114.4m +12.0% EBIT 11.5m 11.0m + 0.5m EBIT margin 9.0% 9.6% -0.6% Our European operations, which account for approximately 75% of Group revenues, delivered a solid performance during the period. Reported revenue was up by 12.0%, including organic growth of 1.4% and 9.6% growth from favourable currency movements. Despite some increased restructuring costs, EBIT grew by 0.5m to 11.5m, although the result does include a 0.8m benefit from currency movements. There was also a small positive contribution to revenue and EBIT arising from the acquisition last year of HRG s existing network partner in Belgium. Organic revenue from Managed Travel was up, with good growth in the UK, Germany and Norway covering a downturn in Switzerland. The UK benefited from the start of the Ministry of Defence and Foreign & Commonwealth Office contract and Germany was boosted by the Euro 2008 football championship. Organic revenue from SME fell by 14% in real terms, with the UK, Sweden and Germany worst hit. During the period, we appointed a new managing director in Germany. We made further investment to upgrade our telephony systems to enable us to improve our call management through the ability to flow calls around key centres in Europe. Linked to this, we implemented a Business Travel Centre capacity management project to optimise call volume and resource flows across Europe. We continued to increase the number of home workers in the UK which will add flexibility to staffing levels and reduce the need to increase office space. North America Six months ended 30 September Change Revenue 32.5m 31.2m +4.2% EBIT ( 0.1m) ( 0.5m) + 0.4m EBIT margin (0.3%) (1.6%) +1.3% Reported revenue for HRG s North American business grew by 4.2% during the period, which was equivalent to a decline of 1.9% after taking account of currency benefits. Following our earlier investments, combined with the improved performance of Spendvision, EBIT has begun to improve and reached around breakeven. A majority of revenues in this region derive from managed client business, including EMM and Sports. There was a small contribution from unmanaged clients, unchanged year-on-year. The North American market continues to be especially competitive. Last year we merged our back-office operations in the USA and Canada to meet this challenge, and started a rigorous programme to improve the productivity in our client-facing operations. We also invested in Half-Year Report and Financial Statements 2008/09 6

7 capacity and infrastructure to meet the needs of our new large global clients. These activities are starting to bear fruit, as evidenced by the positive trend in profitability, but a continuing focus on productivity is essential if we are to continue to improve our financial performance in this market. Asia Pacific Six months ended 30 September Change Revenue 10.4m 8.8m +18.2% EBIT 0.1m 0.1m - EBIT margin 1.0% 1.1% -0.1% We continued to develop our presence in Asia Pacific with revenue ahead by 18.2% over the prior year, equivalent to 6.8% growth without any currency benefit. EBIT was unchanged at 0.1m. All areas of our Asia-Pacific operations showed year-on-year revenue growth, with EMM activities performing particularly well. During the period, we successfully implemented common technology platforms in Hong Kong and Singapore which are linked into our regional finance centre in Melbourne and should improve efficiency and process standardisation. A centralised 24/7 multilingual travel alert unit was established in Melbourne to provide scope to rationalise our operations across the region. In China we introduced a pioneering Airplus Charge Card which enables swift reimbursement of payments made by HRG on behalf of its clients. Spendvision The Spendvision results are included in the regional figures. The expense management business continued to grow during the first six months of the financial year, with revenue up by 75% to 4.2m, including 8% from foreign exchange gains, and EBIT up by 0.8m to 0.7m. Spendvision has continued to build its business with new clients and remains an exciting long-term opportunity for the Group. Outlook The first half of the financial year has traditionally contributed far less than the second half; last year it represented around one-third of the full year EBIT. We are planning for market conditions to be even more challenging in the second half of our financial year and for the foreseeable future. We have continued to win more business than we have lost and we will see the benefit from last year s client wins coming through in the second half. With a strong pipeline and a clear focus on delivering first class service and value to our clients, we are hopeful that this trend will continue. We do however recognise that client tenders are taking longer than they used to. Our margins have held up well as a result of the actions that we took last year to restructure our operations and take out costs, and we are continuing to identify further opportunities to lower operating costs and drive additional efficiencies. In the prevailing macroeconomic climate, it is very difficult to predict with any certainty the outcome for the second half of our financial year. So far, our underlying client revenue for October and November is expected to be down by about 3% compared to the prior year. Nonetheless, given all that we can see currently in terms of workload, combined with the benefit of our cost and efficiency actions, we remain hopeful of finishing the year within current expectations. Half-Year Report and Financial Statements 2008/09 7

8 Additional Financial Disclosures Foreign Currency The following principal exchange rates have been used in the financial statements: Income Statement Balance Sheet Change * Change Euro % % Swiss franc % % US dollar % % Canadian dollar % % * As at 31 March Revenue Revenue grew from 154.4m to 171.0m, an increase of 10.8% over the prior year, comprising 1.0% from organic growth, 0.8% from acquisitions and 9.0% from currency movements. Operating expenses Operating expenses grew from 143.7m to 159.7m, an increase of 11.1% primarily due to the impact of currency movements described above. The average number of employees was down slightly. EBIT EBIT, which includes HRG s after-tax share of results of associates and joint ventures, grew from 10.6m to 11.5m, an increase of 8.5% over the prior year and including a benefit of 0.9m from favourable currency movements. The EBIT margin for the period was 6.7% compared to 6.9% in the prior year. Net finance costs Net finance costs decreased from 5.7m to 5.4m. Costs relating to pension accounting under IAS19 increased by 0.2m and costs relating to external financing decreased by 0.5m. Taxation The tax charge of 2.0m for the current year represents an effective rate of 33% on profit before tax of 6.1m. The prior year charge of 2.5m on profit before tax of 4.9m represents an effective rate of 51%, but includes a one-off charge of 1.1m relating to the revaluation of deferred tax assets arising from tax rate reductions in Germany and the UK. Excluding this one-off item the effective rate was 29% in the prior year. The effective tax rates reflect the mix of profit arising during the period in each country of operation. We anticipate an effective tax rate for the full year of approximately 30%. Earnings per share After taking account of amounts attributable to minority shareholders, earnings per share increased from 0.7p to 1.1p, an increase of 57.1% over the prior year. There was no material change to the weighted average number of shares outstanding. Half-Year Report and Financial Statements 2008/09 8

9 Funding The Group has a 220m multi-currency revolving credit facility that is committed until September The rate of interest is based on LIBOR or EURIBOR plus a margin and normal costs incurred by the lender. Covenants are tested at 30 September and 31 March of each year. The facility is used for loans, the issue of letters of credit and guarantees. During the first six months of the financial year, the maximum utilisation was 197m with 177m at 30 September Pension The Group pension deficit has reduced by 8.9m from 48.1m at 31 March 2008 to 39.2m at 30 September 2008, including the UK defined benefit scheme which reduced by 8.7m, from 38.6m to 29.9m, over the same period. The UK reduction was primarily the result of an increase in the discount rate from 6.3% to 7.0%, offset by a reduction in the fair value of scheme assets invested in equities and an increase in life expectancy assumptions. Principal risks Throughout the Group, management regularly review the principal business risks which could impact on the achievement of corporate objectives, and the mitigation necessary to manage those risks. These risks are strategic, operational and financial and those facing the business in the second half of the financial year are considered below. Further discussion of the Group s risk profile can be found in the Directors Report section of the Annual Report and Financial Statements Unexpected shocks and disasters are always difficult to guard against and the Group faces risks from the effects of such things as sudden economic change, terrorist activities, natural disasters and health pandemics. The current global economic climate, together with recent confirmation of recessions in Europe and North America will inevitably lead to lower travel activity with some of the Group s clients. The Group s geographic, client and sector diversity help to mitigate the effect of any one of these having a material impact on the business and it also has in place appropriate recovery plans to minimise the consequences. The Group continues to pursue new clients as part of its long term growth strategy. There is always a risk that some of the larger contracts in the pipeline do not convert into revenue within the anticipated timeframes. We mitigate this risk by project managing tightly the whole sales process and by working closely with client decision makers. Within our industry sector, the market for key staff with the appropriate skills remains challenging, both from a recruitment and retention perspective. By investing in training and development programmes and constantly appraising performance we aim to mitigate the potential disruptive impacts on the business. Related parties Related parties are not considered relevant to understanding the Group s condensed consolidated half-year financial information. Half-Year Report and Financial Statements 2008/09 9

10 Summary Income Statement Six months ended 30 September Revenue EBITDA (1) Depreciation and amortisation (5.4) (4.5) Share of results of associates and joint ventures 0.2 (0.1) EBIT Net finance costs (5.4) (5.7) Profit before tax Taxation (2.0) (2.5) Profit for the period Summary Balance Sheet 30 September 31 March Goodwill and other intangible assets Property, plant and equipment, and investments Working capital (51.0) (55.3) Current tax liabilities (6.6) (8.2) Deferred tax assets Net debt (123.0) (110.4) Retirement benefit obligations (39.2) (48.1) Other items (2.3) (3.6) Net assets Summary Cash Flow Statement Six months ended 30 September EBITDA Working capital movements (4.4) 0.4 Interest paid (4.3) (5.1) Tax paid (2.9) (3.7) Capital expenditure (3.6) (4.0) Pension funding in excess of EBITDA charge (3.4) (3.2) Other movements (0.8) (0.9) Free cash outflow (2.7) (1.3) Acquisitions and disposals 0.1 (1.3) Dividends paid to external shareholders (8.4) -- Net cash outflow (11.0) (2.6) Foreign exchange (1.6) (1.4) (Increase) in net debt (12.6) (4.0) (1) Earnings Before Interest, Taxation, Depreciation and Amortisation. Half-Year Report and Financial Statements 2008/09 10

11 Consolidated Income Statement Half-year ended 30 September Notes Revenue Operating expenses 6 (159.7) (143.7) Operating profit Net share of profits/(losses) of associates and joint ventures 0.2 (0.1) Earnings before interest and taxation Finance income Finance costs 8 (6.1) (6.3) Profit before tax Income taxes 9 (2.0) (2.5) Profit for the period Attributable to: Equity holders of the parent Minority interests Half-year ended 30 September Note pence pence Earnings per share Basic Diluted The notes on pages 12 to 23 form an integral part of the consolidated half-yearly financial information. Half-Year Report and Financial Statements 2008/09 11

12 Consolidated Balance Sheet as at 30 September September 31 March Notes Non current assets Goodwill and other intangible assets Property, plant and equipment Investments accounted for using the equity method Trade and other receivables Deferred tax assets Current assets Trade and other receivables Financial assets - derivative financial instruments Current tax assets Cash and cash equivalent assets Total assets Non current liabilities Financial liabilities - borrowings 14 (148.8) (155.0) Deferred tax liabilities (2.5) (2.8) Retirement benefit obligations 15 (39.2) (48.1) Provisions (3.1) (3.3) (193.6) (209.2) Current liabilities Financial liabilities - borrowings 14 (9.7) (3.1) Current tax liabilities (8.3) (8.6) Financial liabilities - derivative financial instruments (0.1) (1.3) Trade and other payables (167.1) (179.5) Provisions (0.9) (1.2) (186.1) (193.7) Total liabilities (379.7) (402.9) Net assets Capital and reserves attributable to equity holders Share capital Share premium Other reserves Retained earnings 17 (133.9) (132.8) Minority interests Total equity The notes on pages 12 to 23 form an integral part of the consolidated half-yearly financial information. Half-Year Report and Financial Statements 2008/09 12

13 Consolidated Cash Flow Statement Half-year ended 30 September restated Note Cash flows from operating activities Cash generated from operations Interest paid (5.1) (5.8) Tax paid (2.9) (3.7) Cash flows from operating activities - net Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired (0.3) (2.0) Disposals of associates, joint ventures and other Investments Purchase of property, plant and equipment (1.6) (2.3) Purchase of intangible assets (2.0) (1.7) Interest received Dividends received from associates Cash flows from investing activities - net (2.7) (4.6) Cash flows from financing activities Repayment of borrowings (17.0) (34.6) New borrowings Cash effect of currency swaps (0.7) (0.2) Dividends paid to external shareholders (8.4) - Dividends paid to minority shareholders (0.2) (0.8) Cash flows from financing activities - net (17.7) (9.5) Net decrease in cash, cash equivalents and bank overdrafts (19.2) (11.0) Half-year ended 30 September restated Net decrease in cash, cash equivalents and bank overdrafts (19.2) (11.0) Cash and cash equivalents at the beginning of the period Exchange rate effects Cash and cash equivalents at the end of the period Cash and cash equivalent assets Overdrafts (7.7) (4.5) Net decrease in cash, cash equivalents and bank overdrafts for the period ended 30 September 2007 has been restated to reflect reclassification of foreign exchange movements and the cash effect of currency swaps between cash flows from operating activities, cash flows from financing activities and the reconciliation between opening and closing cash, cash equivalents and bank overdrafts to more fairly reflect cash flows from operating activities. The notes on pages 12 to 23 form an integral part of the consolidated half-yearly financial information. Half-Year Report and Financial Statements 2008/09 13

14 Consolidated Statement of Recognised Income and Expense Half-year ended 30 September Notes Profit for the period Income and expense recognised directly in equity Currency translation differences (3.4) Actuarial gain Reduction in deferred tax asset on pension liability 17 (1.6) (6.2) Reduction in deferred tax asset recognised on the pension liability attributable to tax rate changes - (1.6) Total recognised income and expense Attributable to: Equity holders of the parent Minority interests The notes on pages 12 to 23 form an integral part of the consolidated half-yearly financial information. Half-Year Report and Financial Statements 2008/09 14

15 Notes to the Condensed Consolidated Half-Yearly Financial Information 1 General information The Company is a public limited company, incorporated in the UK under the Companies Act The address of its registered office is Global House, Victoria Street, Basingstoke, Hampshire, RG21 3BT, United Kingdom. The Company is listed on the Official List of the UK Listing Authority and the London Stock Exchange. This condensed consolidated half-yearly financial information was approved for issue on 27 November This condensed consolidated half-yearly financial information does not comprise statutory accounts within the meaning of Section 240 of the Companies Act Statutory accounts for the year ended 31 March 2008 were approved by the Board of Directors on 3 June 2008 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 237 of the Companies Act This condensed consolidated half-yearly financial information has been reviewed, not audited. 2 Basis of preparation This condensed consolidated half-yearly financial information for the half-year ended 30 September 2008 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, Interim financial reporting, as adopted by the European Union. The half-yearly condensed consolidated financial report should be read in conjunction with the Annual Consolidated Financial Statements for the year ended 31 March 2008, which have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. 3 Accounting policies The accounting policies adopted are consistent with those of the Annual Consolidated Financial Statements for the year ended 31 March 2008, as described in those statements. The following new standards, amendments to standards and interpretations to existing standards are mandatory for the first time for the financial year beginning 1 April 2008, but are currently not relevant for the Group: IFRIC 12, Service Concession Arrangements. IFRIC 14, IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. This interpretation provides guidance on assessing the limit in IAS 19 on the amount of the surplus that can be recognised as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. IFRIC 14 does not currently have any impact on the results of the Group. The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 April 2008 and have not been early adopted: IAS 23 (Amendment), Borrowing Costs, effective from 1 January The Group will apply IAS 23 (Amended) from 1 April 2009, subject to EU endorsement, but it is currently not applicable to the Group as there are no qualifying assets. Half-Year Report and Financial Statements 2008/09 15

16 Notes to the Condensed Consolidated Half-Yearly Financial Information 3 Accounting policies (continued) IAS 27 (Revised), Consolidated and Separate Financial Statements, effective from 1 July 2009, subject to EU endorsement. The impact of adopting this standard in future periods is under assessment. IFRS 3 (Revised), Business Combinations, applicable to business combinations effected from 1 January 2010 with earlier application permitted, subject to EU endorsement. The impact of adopting this standard in future periods will be considered in the event of a future business combination. IFRS 8, Operating Segments, effective for annual periods beginning on or after 1 January The Group expects to apply IFRS 8 from 1 April The Directors anticipate that the adoption of the following amendments to standards and interpretations in future periods, which were also in issue but not yet effective at the date of authorisation of this condensed consolidated half-yearly financial information, will have no material impact on the results of the Group: IAS 1 (Amendment), Presentation of Financial Statements, effective from 1 January 2009, subject to EU endorsement. IAS 32 (Amendment), Financial Instruments Presentation, and consequential amendments to IAS 1, Presentation of Financial Statements, effective from 1 January 2009, subject to EU endorsement. IFRS 2 (Amendment), Share-based Payment Vesting Conditions and Cancellations, effective from 1 January 2009, subject to EU endorsement. IFRIC 13, Customer Loyalty Programmes, effective for annual periods beginning on or after 1 July Seasonality The Group s revenue and operating profit are affected by the seasonality of corporate travel business, with travel declining during the summer and Christmas holiday periods and, to a lesser extent, during Easter holidays, which are times when many corporate travellers are on holiday. Typically, the Group experiences the highest levels of revenue in the last quarter of its financial year, principally reflecting increased travel activity by its clients during this period and recognition of revenue due to the finalisation of amounts due in connection with the annual review of supplier contracts. 5 Revenue and operating profit Business segmentation All revenue, operating profit for the half-year, assets and liabilities, capital expenditure, depreciation and amortisation from continuing operations are derived from one primary segment, Business Travel. Half-Year Report and Financial Statements 2008/09 16

17 Notes to the Condensed Consolidated Half-Yearly Financial Information 5 Revenue and operating profit (continued) Geographical segmentation Segment information is provided for regions reflecting the principal economic environment in which the Group operates. Half-year ended 30 September restated External revenue from clients by origin (where the Group is located) Europe North America AsPac 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. Half-year ended 30 September restated Operating profit Europe North America (0.1) (0.5) AsPac Earnings before interest and taxation Europe North America (0.1) (0.5) AsPac External revenue and operating profit have been restated in the half-year ended 30 September 2007 to reflect the reclassification of central revenue and costs among the three geographical segments. AsPac refers to the Asia Pacific region. Half-Year Report and Financial Statements 2008/09 17

18 Notes to the Condensed Consolidated Half-Yearly Financial Information 6 Operating expenses Half-year ended 30 September Staff costs (note 7) Amortisation of client relationships Amortisation of other intangible assets Depreciation of property, plant and equipment Operating lease rentals - buildings Operating lease rentals - other assets Other expenses Operating expenses are affected by changes in foreign exchange rates. 7 Staff costs Half-year ended 30 September Salaries Social security costs Pension costs Redundancy and termination costs Share-based incentives Pension costs comprise: Defined benefit schemes Defined contribution schemes Half-year ended 30 September number number Average number of staff: Business Travel 6,372 6,415 Half-Year Report and Financial Statements 2008/09 18

19 Notes to the Condensed Consolidated Half-Yearly Financial Information 8 Finance income and finance costs Half-year ended 30 September Finance income Interest on bank overdrafts and loans (5.3) (5.6) Amortisation of issue costs on bank loans (0.3) (0.2) Expected return on pension scheme assets less interest cost on pension scheme liabilities (0.5) (0.3) Interest rate caps - (0.1) Other finance charges - (0.1) Finance costs (6.1) (6.3) Net finance costs (5.4) (5.7) 9 Taxation The tax charge is split as follows: Half-year ended 30 September United Kingdom Overseas Tax rate changes (non-recurring) Taxes on income in the half-year periods are accrued using the tax rate that would be applicable to expected total annual earnings by country. Adjustments to goodwill on recognition of tax assets The Group has acquired businesses with tax losses and other deferred tax assets. In previous periods, deferred tax on losses which were not recognised on acquisition were recognised as an exceptional adjustment to goodwill in accordance with IFRS 3, Business Combinations. Tax rate changes (non-recurring) Corporation tax rate reductions in Germany and the UK have led to a one-off reduction in the value of recognised deferred tax assets in these jurisdictions that were booked in the six months to 30 September Half-Year Report and Financial Statements 2008/09 19

20 Notes to the Condensed Consolidated Half-Yearly Financial Information 10 Earnings per share Earnings per share attributable to equity holders of the company were as follows: Half-year ended 30 September Earnings for the purposes of earnings per share Profit for the period Less: amount attributable to minority interests (0.7) (0.3) Total Half-year ended 30 September number number m m Weighted average number of ordinary shares in issue Issued (for basic EPS) Dilutive potential ordinary shares For diluted EPS Dividends A dividend that related to the year to 31 March 2008 and amounted to 2.8p per ordinary share 8.6m was paid on 1 August The dividend was paid to shareholders who were on the register at 4 July Scrip dividends to the value of 0.2m in respect of the dividend for the year ended 31 March 2008 were taken instead of cash payment. In addition, the Directors propose an interim dividend in respect of the six months ended 30 September 2008 of 1.2p payable on 06 January 2009 to shareholders who will be on the register at 05 December This interim dividend, amounting to 3.7m has not been recognised as a liability in this half-yearly financial report, in accordance with IAS 10, Events after the Balance Sheet Date. Half-Year Report and Financial Statements 2008/09 20

21 Notes to the Condensed Consolidated Half-Yearly Financial Information 12 Goodwill and other intangible assets 30 September 31 March Goodwill Other intangible assets Goodwill 30 September 31 March At cost At beginning of period Acquisitions Adjustments to goodwill on recognition of tax assets - (0.9) Adjustments to deferred consideration (0.2) - Exchange differences At end of period Accumulated impairment losses At beginning of period At end of period Carrying amount Half-Year Report and Financial Statements 2008/09 21

22 Notes to the Condensed Consolidated Half-Yearly Financial Information 12 Goodwill and other intangible assets (continued) Other intangible assets Computer software Externally Internally Client acquired generated relationships Total At cost At 1 April Additions for the year Exchange differences At 31 March Additions for the period Exchange differences (0.1) At 30 September Accumulated amortisation and impairment At 1 April Amortisation charge for the year Exchange differences At 31 March Amortisation charge for the period Exchange differences (0.2) - - (0.2) At 30 September Carrying amount At 1 April At 31 March At 30 September Half-Year Report and Financial Statements 2008/09 22

23 Notes to the Condensed Consolidated Half-Yearly Financial Information 13 Property, plant and equipment IT and office Properties Total equipment m At cost At 1 April Additions for the year Disposals for the year (8.8) (0.9) (9.7) Exchange differences At 31 March Additions for the period Exchange differences At 30 September Accumulated depreciation At 1 April Depreciation charge for the year Disposals for the year (8.3) (0.9) (9.2) Exchange differences At 31 March Depreciation charge for the period Exchange differences At 30 September Carrying amount At 1 April At 31 March At 30 September Half-Year Report and Financial Statements 2008/09 23

24 Notes to the Condensed Consolidated Half-Yearly Financial Information 14 Financial liabilities - borrowings 30 September 31 March At amortised cost Current (due within one year): Overdrafts Bank loans Finance leases Total current Non-current (due after more than one year): Bank loans Finance leases Total non-current Total Net debt Total financial liabilities Add back: unamortised loan issue costs Cash and cash equivalent assets (37.1) (49.6) Net debt Half-Year Report and Financial Statements 2008/09 24

25 Notes to the Condensed Consolidated Half-Yearly Financial Information 15 Retirement benefit obligations Defined benefit pension arrangements The Group s principal defined benefit pension arrangement is the Hogg Robinson (1987) Pension Scheme ( The UK Scheme ). The UK Scheme was available to most UK employees until it was closed to new members in March 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 Price Index and 5% per annum. The Group also operates defined benefit schemes in Norway, Switzerland, Germany and Italy which are materially insignificant. The amounts recognised on the Consolidated Balance Sheet are determined as follows: 30 September 31 March UK scheme: Defined benefit obligations (214.2) (235.4) Fair value of plan assets Deficit - UK Scheme (29.9) (38.6) Deficit - Other Schemes (9.3) (9.5) (39.2) (48.1) The movement in the net pension obligations was a reduction of 8.9m compared with the position at 31 March This was primarily the result of an increase in the discount rate applied in the updated actuarial valuations at 30 September 2008 resulting in a reduction in liabilities of 33.8m offset by a reduction in the fair value of those scheme assets invested in equities for the UK Scheme of 20.1m and a change in mortality assumptions of 8.2m. The amounts recognised in the Consolidated Income Statement in respect of the UK Scheme are as follows: Half-year ended 30 September Current service cost Expected return on scheme assets (6.9) (6.2) Interest cost Total charge to the Consolidated Income Statement Half-Year Report and Financial Statements 2008/09 25

26 Notes to the Condensed Consolidated Half-Yearly Financial Information 16 Share capital 30 September 2008 number Authorised Ordinary shares of 1p each 513,808,171 Issued and fully paid At 1 April ,833,065 Shares issued in lieu of cash dividends 409,138 At 30 September 307,242, September 2008 m Issued and fully paid Ordinary shares of 1p each at 1 April Shares issued in lieu of cash dividends Half-Year Report and Financial Statements 2008/09 26

27 Notes to the Condensed Consolidated Half-Yearly Financial Information 17 Reserves Share Other Retained premium reserves earnings m At 1 April (137.6) Retained profit Minority interests - - (0.3) Dividends paid - - (8.6) Share-based incentives Actuarial gain Deferred tax movement on pension liability - - (7.8) Currency translation differences - (3.4) - At 30 September (1.8) (129.7) At 1 April (137.6) Retained profit Minority interests - - (0.8) Dividends paid - - (12.2) Scrip dividend issued in lieu of dividend Treasury shares purchased - - (1.6) Share-based incentives Actuarial gain Deferred tax movement on pension liability - - (3.2) Currency translation differences At 31 March (132.8) At 1 April (132.8) Retained profit Minority interests - - (0.7) Dividends paid - - (8.6) Scrip dividend issued in lieu of dividend Share-based incentives Actuarial gain Deferred tax movement on pension liability - - (1.6) Currency translation differences At 30 September (133.9) Half-Year Report and Financial Statements 2008/09 27

28 Notes to the Condensed Consolidated Half-Yearly Financial Information 18 Cash generated from operations Half-year ended 30 September Profit before tax Adjustments for: Depreciation, amortisation and impairment Net increase in provisions Share of results of associates and joint ventures (0.2) 0.1 Net finance costs Other timing differences Cash expenditure charged to provisions (1.8) (1.2) Change in trade and other receivables 8.4 (2.9) Change in trade and other payables (12.8) 3.3 Pension funding in excess of charge to operating profit (3.4) (3.2) Cash generated from operations Related party transactions There have been no material changes in related party disclosures since 31 March 2008, see note 30 in the Group s 31 March 2008 Annual Report and Consolidated Financial Statements. 20 Contingent assets and contingent liabilities No change has taken place in the contingent assets and contingent liabilities as reported in the Group s 31 March 2008 Annual Report and Consolidated Financial Statements. Half-Year Report and Financial Statements 2008/09 28

29 Statement of Directors Responsibilities The Directors confirm that this condensed consolidated half-yearly financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the Interim Management Report herein includes a fair review of the information required by DTR and DTR 4.2.8, namely: an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report. The Directors of Hogg Robinson Group plc are listed in the Hogg Robinson Group plc Annual Report for 31 March By order of the Board Keith Burgess Company Secretary 27 November 2008 Half-Year Report and Financial Statements 2008/09 29

30 Independent Review Report to Introduction We have been engaged by the Company to review the condensed set of Consolidated Financial Statements in the half-yearly financial report for the six months ended 30 September 2008, which comprises the Consolidated Income Statement, Consolidated Balance Sheet, Consolidated Statement of Recognised Income and Expense, Consolidated Cash Flow Statement and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of Consolidated Financial Statements. Directors responsibilities The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom s Financial Services Authority. As described in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of Consolidated Financial Statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union. Our responsibility Our responsibility is to express to the Group a conclusion on the condensed set of Consolidated Financial Statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the Group for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity, issued by the Auditing Practices Board for use in the United Kingdom. A review of the interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Half-Year Report and Financial Statements 2008/09 30

31 Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of Consolidated Financial Statements in the half-yearly financial report for the six months to 30 September 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom s Financial Services Authority. PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors London 27 November 2008 Notes: (a) The maintenance and integrity of the Hogg Robinson Group plc web site is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the half-yearly financial report since it was initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation and dissemination of the financial information may differ from legislation in other jurisdictions. Half-Year Report and Financial Statements 2008/09 31