Presented Wednesday to investors, Hogg Robinson's annual results for the year to March 31 revealed a traditional travel management company evolving into a business with wider interests as a technology provider for data services, expense management and soon payments.
Bookings by HRG clients dropped 5 percent, owing to challenging economic conditions, and the proportion of those reservations made online (thus incurring lower booking fees) climbed to 36 percent from 32 percent in the previous financial year. The shift was more dramatic in North America, to 51 percent from 40 percent. Consequently, revenue fell 8.3 percent to £343.2 million (US$521.3 million). Yet, pre-tax profit increased marginally to £38.3 million (US$58.2 million) from £38.2 million (US$58 million), raising HRG's profit margin to 14.2 percent from 12.6 percent. How did it pull off this feat?
Part of the answer lies in reservations automation that reduces operational costs as HRG consolidates to fewer, larger service centers and redeploys some staff as home-workers.
There also are fewer total employees, 5,000 as of March 2013 versus 5,400 a year earlier. As a result, staff costs fell more than £20 million (US$30.4 million) to £225.3 million (US$342.2 million).
Of greater strategic interest is that new technology sales net of related additional investment contributed 7 percent of underlying profit. HRG said its strategy now focuses on two core elements: managed travel and the provision of technology solutions and services, the latter of which it has started to refer to as Software as a Service. According to a prepared statement from chief executive David Radcliffe, "We aim to develop our Software as a Service business both direct to corporates and national organizations, and indirectly via third-party travel and payment providers such as global distribution system providers and financial services organizations."
An important example of the indirect services HRG provides is a technology contract with an unnamed GDS, most likely Travelport. First revealed last year, HRG on Wednesday said the contract is for 10 years.
In terms of directly providing SaaS to corporate clients, HRG already announced that it will merge its HRG Online booking tool and Spendvision expense management product to create an end-to-end offering capable of competing with Concur and KDS. HRG on Wednesday indicated the combined tool will be released in 2014.
However, a graphic in its investors presentation explaining the SaaS strategy revealed a more ambitious vision, with Spendvision becoming a technology hub that includes not only booking and expenses but also business intelligence and payment services. Given that offline travel bookings also could feed into the proposed Spendvision hub, could Spendvision ultimately become a more important name than HRG? "In time it could," Radcliffe told The Beat. "Am I going to put a time on it? No."
Radcliffe also declined to explain how HRG will move into payment services with Citi—with which it partnered last year—but said, "We know there is room in the market for a far more integrated travel, expense and payment service. If we look at what American Express is doing, it is pushing its travel management company more into being part of its payment company." He said the reason is that corporate procurement departments increasingly are focusing on payments, which "can open far more doors than if you are just on the travel side."
HRG already is customizing travel-and-expense integration for the Government of Canada, in collaboration with payment provider BMO Financial Group, scheduled to start in mid-2014.
Radcliffe also returned to a favorite label for some TMC rivals as little more than "fulfillment companies" that rely on income from suppliers, and predicted that "we will probably see a deal in the not-so-distant future between a TMC and an online player, which will all be based on increasing volume."
Geographically, HRG enjoyed greatest success in its core European region, where revenue fell to £233.3 million (US$354.4 million) from £250.7 million (US$380.8 million), but underlying pre-tax profit climbed to £35.6 million (US$54.1 million) from £32.1 million (US$48.8 million).
In North America, revenue fell 17.2 percent to £64.6 million (US$98.1 million), and profitability dropped 14.4 percent to £10.1 million (US$15.3 million). Eighty percent of the revenue hit was attributed to a move online by a major credit card loyalty program that HRG operates in Canada. HRG also suffered in Asia/Pacific, with a loss of £300,000 (US$455,700) versus a profit of £900,000 (US$1.4 million) in the previous year. HRG blamed on economic downturn in Australia.
Primarily an expense management business for now, Spendvision increased revenue to £18.5 million (US$28.1 million) from £15.2 million (US$23.1 million), and profitability to £3.4 million (US$5.2 million) from £2.4 million (US$3.6 million). HRG attributed much of the success to a 31 percent jump in revenue from white-label products for the financial services sector.