Hogg Robinson's wings are clipped

During the first-half of this financial year the group's pre-tax profits were down by almost a third to £11.3m while earnings per share dropped by a fifth to 1.9p. Trading has been tough for Hogg Robinson's travel management business, which generates 93 per cent of group revenue. In Europe, which accounts for 64 per cent of total sales, the recovery of the UK corporate travel market has slowed with client spend falling 2 per cent during the first half. Other European markets including Germany and Switzerland were also weak and some small and medium-sized enterprise clients also implemented travel-expenditure freezes.

Hogg Robinson's Asia Pacific business tells a similar story. The sluggish Australian economy meant booking activity in the country was down by almost a fifth during the first half. Added to this are Middle Eastern uncertainty and slowdown of the Chinese economy, both of which have impacted on business confidence.

And Hogg Robinson also faces a structural threat. Businesses are increasingly managing their travel booking online with around 46 per cent of booking handled this way during the first half of the year compared with 40 per cent the previous year. The move online has been faster than expected and Hogg Robinson earns lower margins on such transactions, with the group's average value per transaction down 17 per cent since 2010. As a result the group is reducing its cost base by cutting headcount and locations, as well as encouraging home working. Admittedly the group did achieve £7m in costs savings last year and aims to save a further £10m by the end of 2016. However, there is only so much fat-trimming that a company can do.

It is not all doom and gloom, though. During the first half the travel services group managed to reduce net debt from £80m to £59m. North America, while only 22 per cent of revenue is showing good growth. And the group's Spendvision business, which provides expenses software, enjoyed revenue growth of a fifth during the first half to £11.2m on a constant currency basis, although this represented just 7 per cent of sales.

Management's strategy for dealing with the challenges has included targeting growth in the marine, offshore and energy industries, and around 8 per cent of its corporate travel management revenues are now linked to the oil and gas sector. This could provide further bumps in the road as companies in the sector reduce their capital expenditure in response to oil price weakness.