HRG Completing Restructuring For Reduced Volumes

Hogg Robinson Group's European restructuring is largely complete after incurring a £5.6 million net exceptional charge in fiscal year 2009, which ended March 31, according to HRG CEO David Radcliffe. The exceptional charge included £6.6 million for staff costs as the company has 10 percent fewer employees than in the end of 2008, offset by the release of unutilized accruals related to previous acquisitions.

"Our cost saving is largely done and is now reshaped for the reduced kind of volumes we are expecting," Radcliffe told EuroBTN.

Another major part of the company's operational restructuring in its home region is the consolidation of its business travel centers into a hub-and-spoke model, in which certain centers handle specific types of reservations in support of the larger service centers.

In the United Kingdom, the travel management company now operates hub locations in Belfast, Glasgow and London and "specialist" operating centers for rail in Manchester, hotel reservations in Leicester and after-hours support in Farnborough.

Hub models also were implemented in Italy and the Nordic region.

The company also is investing in technology to enable more agents to work in a virtual environment. According to Radcliffe, more than 100 agents based in the United Kingdom are working from home, while being linked to the business travel centers.

Radcliffe said the business travel center consolidation has been taking place since HRG's 2006 split from former partner BTI, but has accelerated with the economic downturn's onslaught on business travel and client demand for cost savings. The move to a hub-and-spoke model gives HRG flexibility to handle fluctuating volumes and maintain an appropriate cost structure in Europe, where most clients are on cost-plus fee arrangements with travel management companies.

"Within our business model, most of our contracts with the client—particularly here in Europe—are linked to the cost that is carried and associated with their business," Radcliffe said. "A lot of the discussion is what shape they want their future business to be transacted by. In some cases, clients said, 'What is more important to us is not where we are serviced from, but who we are serviced by. We don't mind where those people are, provided they are the right people to service our business.' "

HRG's European revenues increased 5 percent year-over-year to £260.3 million. Yet, operating profit declined 31.2 percent to £24.9 million, driven by significant business travel decreases.