Hogg Robinson Group this week reported 6.7 percent higher revenues of £332 million (US$662 million) for its fiscal year ending in March, thanks largely to acquisitions in the Czech Republic, Poland and United States that "all performed well during the year," HRG said. Excluding acquisitions, revenues were 2 percent higher year-over-year.
The company also said it would realign its European meetings and small business services, and that larger managed corporate accounts were showing mixed demand trends.
A one-time accounting charge hurt otherwise positive operating profits in North America, while Asia-Pacific achieved profitability and performance in Europe was mixed. Overall, HRG posted 12 percent higher profit before taxes of £25 million (US$50 million). Despite good momentum in client signings and retention, the company said 2008 was a "tough year measured against a strong prior year."
Characterizing its North America results as "transitional," HRG posted an operating loss of £1.3 million (US$2.6 million) versus an operating profit of £1.8 million (US$3.6 million) a year earlier, largely resulting from what officials called "significant" startup costs "associated with new client implementations," as well as investments to get "ahead of the curve" on infrastructure and capabilities. North America would have delivered £1.1 million pounds (US$2.2 million) in operating profits except for a £2.4 million (US$4.8 million) one-time charge recorded after a review of what HRG described as "potentially unrecoverable" costs anticipated on a certain contract with a customer that is "not a managed client."
HRG reported 16 percent overall revenue growth in the region including acquisitions, to £65 million (US$128 million), and organic revenue growth of 5.4 percent. The company said its North American business "should begin to rebuild" from a "low base."
Generally in North America, HRG said, "There is significant pressure on margins in this very competitive market and we will continue to improve the efficiency of our service delivery. To that end, work on amalgamating our businesses in the U.S. and Canada was completed early in the year and we are continuing to drive additional productivity now that the new structure is more settled."
Elsewhere, "mixed" performance in Europe--with flat organic revenues and 2.8 percent higher overall revenues of £248 million (US$495 million) but 7 percent higher operating profit of £33 million (US$65.8 million)--featured weaker demand for events and meetings management, and from small and medium enterprises (particularly during the March quarter in Germany and the Nordic countries). European organic revenue was flat as HRG recorded "strong" performances in the United Kingdom and Switzerland. HRG expects "modest growth" in Europe this year.
The weaker-performing European meetings and SME segments represent about 20 percent of company revenue, but "are quite susceptible to shifts in client confidence," said HRG chief executive David Radcliffe. He said HRG has decided to "integrate these activities with those of managed travel to give a better level of coordination, particularly when they are with common clients. We were running events separately in Europe, outside of managed travel, and yet a lot of the business in our events business is linked to managed travel clients, so you might have the same client doing classic or 'transient' travel being dealt with by a different group of people for events. That's still the same; they may still be dealt with differently, but in terms of integration of common systems, back office, etc., we have incorporated it back in to mainstream managed travel." According to group finance director Julian Steadman, "We had stated a process to try to separate those things out, and it was clear that we lost a little focus and discipline on that."
These segments' softer performances outweighed benefits from a previously announced restructuring program that HRGcompleted at a cost of £1.9 million (US$3.8 million) with a savings of more than £3 million (US$6 million), officials said. "During the year we restructured the European operations away from the traditional country orientation in order to provide a seamless international service to our multinational clients and also to lower our cost base for the future," the company said. "We also enhanced our service offering through investment in a new integrated telephony system to link our major European call centers in Glasgow, Berlin and Stockholm, and also our low-cost service center in Budapest. The new system has already improved call management by optimizing capacity, skill set and language across country boundaries."
Asia-Pacific revenue growth topped 35 percent, or 28 percent excluding acquisitions--but its total revenue represents the company's smallest region at £19 million (US$37.4 million). Operating profit in the region reached £1.1 million (US$2.2 million), versus a loss during fiscal year 2007. "An increasing number of clients are starting to consolidate their travel and related expenses from within China," noted Radcliffe.
According to the firm's prepared statements regarding the market at large, "We began to see some changes in the final quarter of the financial year and some of our managed clients, particularly those in financial services, have sought to reduce their overall travel expenditure."
"We are seeing a mixed bag," said Radcliffe. "Most of our profit is driven in Europe. Over here, we're seeing some clients switch their focus of travel less towards North America and more towards Asia-Pacific. We're seeing some clients reduce their expenditure by saying, 'We want to make sure we travel less, make sure we do more videoconferencing, use meeting rooms more efficiently, etc.,' and we're looking at some clients saying, 'We want to reduce our expenditure, but want to travel just as much.' We're seeing not just clients trade down, but some others trade up, which is why you manage to see, despite the downturn, some growth overall."
HRG said managed travel accounts for between 70 percent and 80 percent of its revenues, with more than 200 clients using HRG in more than one country. The company claimed it handles about 20 percent of business travel in the United Kingdom. HRG said it owns operations in 25 countries, with "contracted partners operating under the HRG brand in a further 81 countries." The travel management company said new clients include Ericsson, Hugo Boss, Interpublic, KPMG, Lazard, Nationwide, Pepsico, Random House and Wachovia.
Based on client location, HRG in fiscal 2008 generated 74 percent of revenues from Europe, 20 percent form North America and 6 percent from Asia-Pacific.