INTRODUCTION TO HOGG ROBINSON GROUP plc
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 FY15 9 Investment case summary 10 Appendices 11-31 2
Business model and competitive advantages Hogg Robinson Group 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 COMPETITIVE ADVANTAGES Size and scope Proprietary technology Flexible service offering People Focus on multinational corporates and large national organisations HELPING CLIENTS GAIN BETTER VALUE FROM THEIR TRAVEL AND RELATED EXPENDITURE 3
An evolving and growing business Managed travel Restructure our managed travel business to match existing and future trends 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) 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
Financial performance Years ended 31 March Revenue ( m) Underlying profit before tax ( m) 1,2 400 300 200 100 0 358 374 343 341 330 2011 2012 2013 2014 2015 50 40 30 20 10 0 32.9 38.2 34.9 35.8 30.5 2011 2012 2013 2014 2015 Underlying operating profit margin (%) 2 Net debt ( m) 20% 10% 0% 11.7% 12.6% 14.2% 14.5% 12.9% 2011 2012 2013 2014 2015 100 80 60 40 20 0 87.0 61.1 61.0 65.3 54.7 2011 2012 2013 2014 2015 Dividend per share (p) Return on capital employed (%) 3 3 2 1.50 2.00 2.10 2.21 2.32 30% 20% 19.4% 22.5% 22.3% 23.3% 20.6% 1 10% 0 2011 2012 2013 2014 2015 0% 2011 2012 2013 2014 2015 (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
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 13-14.5% Reduce net debt Net debt / EBITDA in range 0.7-1.0x Progressive dividend 6
Clients and contracts Client portfolio includes: Revenue by client sector (1) SME, 9% Banking & Finance, 17% Stable and diverse blue chip, multinational client portfolio Multi-year contracts and longterm relationships Good sector spread Other, 13% Engineering, 3% Media & Entertainment, 3% Consulting, 6% Government, 11% Manufacturing, 11% Energy (incl Oil & Gas), 8% Pharma & Retail & Consumer Healthcare, 9% Goods, 10% (1) As at 31 March 2015 7
Target markets WTTC growth forecast for global corporate travel spend in CY2015-24 is 3% per annum (1) Europe 2% per annum North America 3% per annum Expense management market predicted to grow by in CY2015-24 6% per annum (2) Travel management Expense management (1) World Travel & Tourism Council, March 2015 (2) Hogg Robinson Group estimate 8
Financial actions in FY15 Priority Result FY15 progress Net debt in the range 0.7 to 1.0 times EBITDA At 31 Mar 2015: 1.0 times net debt to EBITDA 16% ( 10.6m) reduction in net debt Lower cost base to reinvest in technology UK pension scheme triennial revaluation Drive investment in technology roll-out Exceptional costs of 7.3m (before pension curtailment credit of 1.0m) (2014: 7.0m) yielded 2.6m cost saving in FY15 Annualised savings of 8.7m from FY16 Target further cost savings of 20m over next 2-3 years Agreed a new ten-year recovery plan with annual deficit reduction payments decreasing by 1.0m to 7.2m in FY15 and increasing in line with RPI thereafter Invested 2.3m in FY15 of which 1.1m was sales and marketing related expenditure Progressive dividend Full-year dividend increased by 5% 9
Investment case summary Track record of improved profit margins, against revenue headwinds Technology mix (SaaS) adding potential for revenue and profit growth Reducing leverage cash flow being used to reduce debt Pension liability steps taken to prevent further exposure Progressive dividend policy, backed by healthy cover ratio 10
APPENDICES 11
Extracts from FY15 results presentation 12
Summary Revenue 330.1m -3% Underlying operating profit margin (1) 12.9% -1.6pp Underlying PBT (1) 30.5m -15% Underlying EPS (1) 6.6p -15% Free cash inflow (2) 17.9m - 6.9m Net debt 54.7m - 10.6m Dividend per share 2.32p +5% Dividend cover 2.8 times -0.7 times Faced near-term challenges Client transaction activity rose by 6% compared to prior year and travel spend increased by 3% to 4.5 billion at constant currency Revenue up 1% at constant FX with majority of growth driven by North America Good performance in Spendvision: revenue up 16% and UOP ahead 17%, both at constant currency 16% reduction in net debt YOY New UK triennial pension valuation with decrease in cash contributions (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 13
Strong new business New clients and expanded contracts in FY15 include Recently renewed contracts include 14
Cash flow Years ended 31 March 2015 m 2014 m EBITDA (1) 53.4 60.2 Exceptional items (8.3) (3.0) Working capital movements (1.2) 6.2 Interest (5.0) (6.3) Dividends received from equity accounted investments 0.7 1.0 Refinancing costs - (1.7) Tax (4.0) (4.2) Capital expenditure (11.3) (14.3) Additional pension contributions (4.5) (10.3) Other movements (1.9) (2.8) Free cash inflow 17.9 24.8 Acquisitions and disposals - 1.3 Dividends (7.1) (6.7) Currency translation (0.2) 2.3 Decrease in net debt 10.6 21.7 (1) Earnings Before Interest, Taxation, Depreciation and Amortisation (EBITDA) is before exceptional items 16% reduction in net debt Other working capital changes due to normal trading patterns Dividends are the final 2014 and interim 2015 payments 15
Net debt down net debt / EBITDA (1) target range reached 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 2018 7.239% fixed rate Net debt / EBITDA (1) target range of 0.7-1.0 times reached 2.0 1.5 1.0 0.5 0.0 100 80 60 Net debt : EBITDA (1) 1.8 1.6 1.4 1.1 1.0 2011 2012 2013 2014 2015 31.1 31.4 Net debt at 31 March 40 20 61.1 61.0 87.0 65.3 54.7 0 2011 2012 2013 2014 2015 (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 Net debt ( m) Active working capital management ( m) 16
Balance sheet As at 31 March 2015 m 2014 m Goodwill and other intangible assets 236.8 238.0 PPE and investments 13.1 12.6 Working capital (52.4) (56.4) Current tax liabilities (net) (6.2) (5.8) Deferred tax assets (net) 53.9 41.5 Net debt (54.7) (65.3) Pension liabilities (pre-tax) (258.6) (180.4) Provisions and other items (4.7) (5.1) Net liabilities (72.8) (20.9) Major net asset changes from: Pension liabilities - 78.2m Deferred tax assets (net) + 12.4m Net debt + 10.6m Pension deficit: 209.8m after tax (2014: 147.2m) UK pre-tax deficit up 76.5m 17
Pension plans Group-wide deficits of 258.6m up 78.2m UK deficit up 75.6m to 240.0m Discount rate reduction of 1.1% added 109.3m 58% investment in equities Defined benefit section closed to future accrual (30 June 2013), replaced by a defined contribution section Annual deficit reduction payments reduce by 1m to 7.2m, effective April 2014; linked to RPI thereafter 300 250 200 6.3% 6.7% Group pre-tax deficit ( m) (1) 180.4 258.6 7.5% 7.0% 6.5% 6.0% 150 145.8 5.5% 5.5% 126.4 114.7 159.4 5.5% 5.0% 5.0% 100 4.7% 4.5% 50 48.1 65.3 4.4% 4.0% 3.5% 0 3.3% 2008 2009 2010 2011 2012 2013 2014 2015 3.0% Pre-tax pension deficits ( m) UK scheme discount rate (1) At 31 March 18
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Defining our business structure and channels to market We have two primary business streams Travel and Expense Management Business to Business (B2B) Payments Offering a wide range of SaaS products and solutions OTA Ready-made solution Travel Technology Expense Management Integrated End-to-End Transaction Solutions Payment Solutions Selling direct and via channel partners DIRECT CHANNEL PARTNERS To a target market of end-users Corporate Clients 20
Market overview Global Revenue: +$50m Owned by Sabre Partnership with SAP For TT&E Mkt Cap: $6.2B Revenue: $690m $ per emp: $143,631 Strategy: Sales & Marketing driven, focus on market share rather than profit at this stage Mkt Cap: $97,12B $ per emp: $252,584 USD Strategy: Builds TT&E in partnership with industry leading technologies Regional Revenue: unknown Owned by Expedia Travel Technology solutions for both corporate as travel agencies Mkt Cap: $55.5m $ per emp: $64,000 NZD $17M Capital injection to fund growth in AsiaPac. Today loss making operation. Revenue: unknown T&&E solutions for both corporate as travel agencies Mkt Cap: n/a $ per emp: 85,000 Strategy: Travel, Expense, Banking, and Payments Local Revenue: unknown Privately owned Australian provider of travel technology solutions Revenue: unknown Raised 17M funding in Jan-14 US Centric but named one fastest growing privately owned companies Revenue: + 5M Owned by i:fao Technology Group. Main focus is German speaking companies Revenue: 10M Privately owned Focus on Europe but global product offering. Able to provide TT&E as agnostic to any OBT Revenue: unknown Raised $40m funding in March 2014 Focus is total spend management We are uniquely positioned across the transaction universe to deliver differentiated value to clients Travel Expenses TT&E Total Transaction Management: (T)T&E, B2B, Payments 21
Summary & outlook One of the most challenging years for the Company we took actions early in the year Government of Canada mutually satisfactory conclusion to discussions; contract will return to profitability in FY16 Online, self-booking of travel by clients up from 42% to 47% - saved 2.6m in FY15; annual cost savings of 8.7m in FY16 and beyond; further 20m savings over next 2-3 years Weakness in Europe and Asia ongoing actions to reduce costs Good progress made on financial priorities North American revenue up 20% at constant currency strong contribution from underlying travel business with constant currency revenue up 9% and UOP (1) ahead 15% 16% reduction in net debt New ten-year pension deficit reduction plan agreed Full-year dividend up 5% - progressive dividend policy Outlook Further recovery in the UK and North American travel markets Confident that the Company will make further progress through the rest of the year (1) Before amortisation of acquired intangibles and exceptional items 22
Contract structures 23
ONLINE FEE CLASSIC FEE 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 24
TRANSACTION FEE MANAGEMENT FEE 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 25
ONLINE FEE CLASSIC OPERATING COST 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 26
Miscellaneous 27
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 28
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 Hogg Robinson Group since 1978, CEO since 1997 Non-Executive Director of Wincanton Group Finance Director: Michele Maher Joined Hogg Robinson Group in 1995 Previously Finance Director Worldwide Operations of HRG Chief Operating Officer: Kevin Ruffles Joined Hogg Robinson Group in 1972 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 Non-Executive Director: Mark Whiteling Chief Financial Officer at Premier Farnell 29
Contact details HOGG ROBINSON GROUP PLC Global House Victoria Street Basingstoke Hampshire RG21 3BT UK +44 (0)1256 312 600 www.hoggrobinsongroup.com Angus Prentice Head of Investor Relations 30
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. 31