Hogg Robinson Group is repositioning itself as an integrated travel, expense and data management company to compete with the likes of Concur and KDS. The new strategic direction follows its acquisition in March of the 42 percent stake in expense management company Spendvision that HRG did not already own.
HRG chief executive David Radcliffe told The Beat that the company has established working groups to integrate Spendvision technology with HRG's core travel booking and reporting technology. He added that sales and account management for the two companies also will be merged. In HRG's report on its financial results for the year ending March 31, issued Wednesday—in which it revealed a 16 percent jump in underlying profit before tax to £38.2 million—the company also noted a "refreshed" Spendvision management team.
HRG in 2004 made its initial investment in Spendvision, and at the time Radcliffe outlined a vision for integrating travel and expense processes in a way that has since become a favored approach at such companies as Concur and KDS. However, the vision never materialized at HRG. Spendvision largely operated at arm's length, concentrating on providing white-labelled expense tools for banks and mobile phone operators predominantly for small businesses and consumers.
Radcliffe said companies such as Concur now are becoming HRG's competitors and conceded that his company missed an opportunity to take an early leadership in that market. "There is an argument that we could have responded earlier but there are a lot of reasons why that did not happen," he said. "It does have to be taken into the context of what the group was doing at that time. Our intention was to expand in expense management but we bought into Spendvision before Business Travel International [the global network jointly owned with the parent group of BCD Travel] disbanded, and before our initial public offering and the collapse of Lehman Brothers.
"Government clients and large international clients are increasingly looking at end-to-end services," Radcliffe continued, "and you only have to look at Concur's performance to justify that remark. There are two different directions a TMC can take. One is as a fulfilment provider, with outsourced technology. The other is to turn more into a services group. The market is right in the middle of this change.”
Radcliffe noted that HRG's direct TMC competitors have not become major expense management players and therefore "we are now arriving in the market at the right time." But he added that "TMCs are not our only competitors. This is a market a lot of companies are going to try to get into. I predict that financial institutions will be among them."
With a strategic repositioning, according to Radcliffe, HRG ultimately could split into two businesses: a traditional travel management company, or what he described as a "classic" travel operation, and one more closely resembling Concur's automated booking and expense management model. "It could make sense for us in future to work with a preferred card supplier," Radcliffe added.
Flattening Revenue
HRG's revenue in the fiscal year to March 31 increased 5 percent to £374.2 million. All growth came in the first six months, although profitability continued to improve in the second half. Travel transactions by clients increased 2 percent across the full period, while spending among those clients rose 5 percent, indicating a continuing increase in price per trip for customers.
Radcliffe said he was not concerned by revenue flattening in recent months. "Our first half figures followed a weak comparator for the previous year," he said. "Buying volume to trigger payments from suppliers is the road to ruin. You have to look at our track record since 2008. The market has been tough but we have consistently punched in improved performance. This is not a one-off."
In Europe, HRG’s largest marketplace by far, revenue in constant currency was flat, as was client spend. Underlying operating profit increased to £32.1 million from £30.8 million, although £1 million of this improvement was attributed to the weakness of the euro against sterling, HRG's home currency.
HRG stated that the last year has seen a significant trend in Europe for multinational clients channeling reservations through a much smaller number of multi-country service centers. HRG claimed such consolidation offers "value, policy compliance, control and robust security monitoring. This trend has now become a regular feature in all major new business proposals." The company has closed some of its local offices in response to the trend.
HRG reported that Germany and Switzerland performed particularly well during the financial year, and that online booking tools across Europe accounted for 27 percent of all reservations, up from the 25 percent the year before.
In North America, revenue rose 0.6 percent to £78 million and underlying operating profit rocketed 19.2 percent to £11.8 million. HRG finance director Julian Steadman said the dramatic improvement in profitability represented the culmination of streamlining previously disparate HRG operations in the region. Steadman, who is scheduled to retire next month, said the figures were a "high point" in terms of profit margin and that the margin will be lower next year. HRG also said it successfully converted travel management clients in North America into meetings clients as well.
Revenue and profitability also both grew in Asia. Business was particularly strong in Australia, owing to a booming economy and increasing demand for its natural resources. The country remains a leader in online booking adoption, up to 55 percent among HRG clients.