Chairman & CEO statement

I was delighted to take over as CEO of ITE on 1 September. I am very excited by the opportunity at ITE to work again in a business whose heritage is familiar to me and apply my experience from a career in the global exhibitions industry to drive the business forward.

I have spent the time since my appointment travelling to meet the Group’s operations and customers and so far have visited Russia, China, Indonesia, India, South Africa and as well as our UK offices outside of London. I have been very impressed by the people I have met, their knowledge of local markets and their enthusiasm for the events they run. It is clear that a number of our customers have strong connections to our events and recognise their essential market leading positions.

My first impressions are that ITE has some great people and events and I believe that there are significant opportunities through enhanced sales and marketing activities, greater use of technology and focussed management reporting to drive operational efficiencies and improved performance in order to better service our customers.

With a new executive management team now in place, I am in the process of conducting a comprehensive review of the business and strategy. I look forward to presenting the results of this review at the time of the Group’s interim results in May 2017.

ITE’s performance in 2016 largely reflects the challenging trading conditions in Russia and Central Asia, the decline in the value of the Russian Ruble (against Sterling) in which 20% of the Group’s revenues are denominated, compensated by the Group’s acquisition activity in line with its diversification strategy.

The Group’s acquisitions this year were mainly aimed at consolidating our ownership position in existing investments. In October 2015 the Group acquired an additional 31.7% stake in ABEC taking the Group’s ownership in this business to 60% and in May 2016 the Group acquired a further 24.9% of Africa Oil Week following the exercise of a put option by the non-controlling interest, which was settled by a small issue of equity, taking the Group’s stake in this business to 75%.

The main factors affecting Group profitability this year are summarised in the profit bridge below.

(Moscow, St. Petersburg, Novosibirsk, Krasnodar, Ekaterinburg) During the year ITE held 110 events in Russia (2015: 116), with total volume sales of 256,000m2 (2015: 312,600m2). Revenue of £50.9 million was 30% lower than the previous year, reflecting the difficult trading environment and the weakening of the Russian Ruble. On a like-for-like basis volume sales in Russia decreased by 14% and revenues decreased by 16% from the prior year.

Moscow is ITE’s largest office in Russia accounting for around 75% of the region’s revenues. Moscow’s volume sales for the year were 151,200m2 (2015: 202,400m2); a fall of 18% on a like-for-like basis.

The leading events in Moscow performed as expected this year demonstrating resilience in tough conditions. The Moscow International Travel and Tourism exhibition which is held annually in March delivered sales of 11,700m2 (2015: 16,300m2) as the impact on Russian international tourism from the devaluation of the Ruble was exacerbated by the deterioration in relations between Turkey and Russia at that time. Mosbuild saw volumes fall by 21% to 31,800m2 (2015: 40,300m2) in line with the Board’s expectations due to the impact of the economic conditions on the construction industry and local competition. The logistics event TransRussia saw volumes decline to 7,200m2 (2015: 7,900m2), whilst the security event, Moscow International Security & Protection performed a little better with volumes of 10,600 m2 (2015: 11,100m2). WorldFood Moscow in September proved relatively resilient, increasing its visitor numbers over the prior year and suffering only a 10% fall in volumes to 20,200m2 (from 22,600m2), as supplier substitution offset a decline in the traditional European supplier base.

The Group operated 16 events from the St Petersburg office during the year, with overall volume sales of 23,100m2 (2015: 27,600m2). Performance was in line with Moscow with most shows showing declines in volumes from the prior year. Those events in industries reliant on capital expenditure, such as construction and mining were the most impacted. The exception was ExpoElectronica, the international radioelectronics event, which grew by 4% as it took further market share.

In Novosibirsk, Siberia, ITE is the anchor tenant in the city’s main venue. During the year the region held 34 events (2015: 36), with overall volume sales declining to 23,500m2 (2015: 30,200m2) with all sectors affected. An impairment charge of £1.2m was taken in the interim results writing off the remaining goodwill and intangible assets associated with this business due to the sustained downturn in the region.

The Krasnodar region in southwest Russia is one of the most prosperous outside Moscow. The exhibition portfolio covers a broad range of sectors, the largest events being in agriculture and construction. The Group has now become the anchor tenant at a new 28,000m2 venue in the city, which opened ahead of schedule in November 2015, and in time to house ITE’s agricultural event, YugAgro, which grew by nearly 20% over the prior edition. In total this office contributed volume sales of over 57,800m2 (2015: 52,500m2) an increase of 13% on a like-for-like basis.

ITE’s principal offices in Central Asia are in Kazakhstan, Azerbaijan and Uzbekistan. All of the economies in this region are heavily dependent on oil and gas for their overseas earnings and economic wealth and in the case of Kazakhstan a significant level of trade with Russia as well. The fall in the oil price and the Russian economic recession have had a significant impact on trading conditions within the region.

This year ITE organised a total of 74 events (2015: 79) across these territories delivering total volume sales of 70,400m2 (2015: 83,000m2) and revenues of £22.0 million (2015: £27.2 million). Overall, on a like-for-like basis volumes decreased by 17% over the previous year with revenues falling by 8% on the same basis. This region was later to suffer a decline in trading compared with Russia and so is currently lagging Russian performance.

Kazakhstan is the Group’s largest office in the region selling 34,400m2 (2015: 45,200m2). The largest event in the region, Kazakhstan Oil & Gas Exhibition (KIOGE), which took place in Almaty in October 2015, was smaller than the prior edition at 5,800m2 (2015: 6,800m2).

Azerbaijan achieved volume sales of 19,300m2 (2015: 25,600m2) a decrease of 24% on the prior year on a like-for-like basis with all sectors suffering reduced volumes and like for like revenues down 12% on the prior year.

ITE’s Uzbekistan business is slightly more insulated from the oil price due to the nature of the local economy and it performed well in 2016 selling 16,100m2 (2015:11,500m2) due to the benefit of some timing changes and the biennial pattern. On a like-for-like basis volumes have increased by 5% and revenues by 16%.

The Eastern and Southern Europe region is represented by the Group’s offices in Turkey and Ukraine.

Overall the region sold 172,200m2 in 2016 (2015: 147,000m2), reflecting the stronger biennial pattern in Turkey and growth in Ukraine. On a like-for-like basis this represents an increase of 4% in volumes.

Trading in Ukraine has recovered strongly. Overall volume sales for the year were 37,000m2 (2015: 26,500m2) a 40% increase on a like-for-like basis in comparison to the prior year and revenues increased by 35% on the same basis. With a population of over 45 million people and the potential for further economic recovery, Ukraine now offers attractive returns in the longer-term.

Overall total volumes in Turkey were 135,200m2 (2015: 120,400m2) reflecting the biennial Ankomak event which mitigated the challenging local environment. On a like-for-like basis volume sales were 3% lower than last year. The travel event EMITT was challenged due to the deterioration in relations between Turkey and its local trading partners and the backdrop facing the tourist industry and fell by 7% to 26,700 m2. Turkeybuild, the pre-eminent construction event in Turkey, took place in late April and delivered 38,400m2 (2015: 40,000m2). In September, following the attempted coup in July, the Group’s WorldFood Istanbul exhibition fell from 13,900m2 to 12,000m2. All of these events were protected to some extent due to the existing bookings for the event but it looks likely that this region will face a challenging 2017..

The Group’s operations in this region are based in India, China and South East Asia. These regions represent relatively new markets for ITE in which to grow our existing products and potentially develop new sectors. Although these markets have experienced flat or slowing economic growth they are still attractive markets as they are underpinned by a rapidly expanding aspirational middle class population which is expected to drive consumer demand. In addition, they have relatively immature exhibition industries for the size of their economies and these two factors combine to offer good potential growth opportunities over the medium-term. In October 2015, the Group exercised its call option to take a majority stake in ABEC. This increased revenues in the region to £18.1 million (2015: £3.9 million). The Group’s other operations in this region are largely through a series of joint venture arrangements and the Group’s income statement reflects only those revenues over which it has majority ownership.

The Indian exhibition industry offers significant potential but is currently restricted by the lack of international quality venue space in the country. The Group operates two business in India: one through a small wholly-owned subsidiary, ITE India, and the other through ABEC, India’s largest private exhibition organiser in which ITE increased its stake from 28.3% to 60% in October 2015. ABEC’s portfolio of over 20 exhibitions across different industry sectors includes Acetech – India’s leading construction event. Both businesses performed in line with management expectations this year. ITE India had its biennially stronger year, whilst ABEC’s Acetech events once again performed strongly.

Although the underlying businesses remain strong, the growth of the Indian business has been slower than management’s initial expectations and the delay in the construction of a new venue means that the value in use, as calculated under accounting standard IAS 36, falls short of the current carrying value and therefore an impairment has been recognised to write down the goodwill and intangible assets attributable to the business to £32.1 million.

In China the Group has offices in Beijing, Shanghai, Guangzhou and operates (through its Hong Kong headquartered 50% joint venture partner Sinostar) the Chinacoat/Surface Finishing China event. The November 2015 Chinacoat/Surface Finishing China event saw record sales of over 39,800m2, with another strong performance expected at the November 2016 event. A 70% stake in the complementary ITE Ebseek’s Fastener Expo was acquired in November 2015 and had a successful debut under ITE’s ownership. It is currently being integrated in to ITE’s Chinese operation.

In South East Asia the Group operates through three organisations based in Malaysia and Indonesia. In Kuala Lumpur, Malaysia the Group now owns 100% of Tradelink (having acquired the minority’s 25% stake in November 2015) which runs the Metaltech event, serving the machine tool technology and metal fabrication industries. The event, which sells over 12,000m2, takes place each May in Kuala Lumpur and performed marginally ahead of the previous edition, although it is likely to remain at its present size until construction of a new venue is completed, which is expected in two years’ time. Also based in Kuala Lumpur is the Group’s 50% joint venture, ECMI, a pan-ASEAN organiser operating in Malaysia, Indonesia, Vietnam and Myanmar, and traditionally operating in the professional beauty, life-sciences, and oil & gas sectors. Similarly to India, these businesses remain strong but the delay in construction of a new venue in Malaysia has reduced their growth below expectations at the time of these acquisitions resulting in impairments under IAS 36 of £4.1m for goodwill associated with South East Asia and of £1.9m relating to the carrying value of our joint ventures in the region. In Jakarta, Indonesia, the Group owns 50% of PT Debindo which runs the Indobuildtech series of construction exhibitions, the largest of which takes place annually in Jakarta. This year the event moved to the new International Convention and Exhibition Centre and has grown to over 22,000m2 (2015: 14,000m2).

The Group’s RoW business contains the results of our UK fashion events and the Africa Oil Week, Breakbulk Americas and Europe events.

In MODA the Group owns the leading midmarket fashion event for Womenswear, Menswear, Footwear and Lingerie which runs twice a year in Birmingham. In London the Group operates Bubble, a niche highend childrenswear event; Jacket Required, a designer-led menswear event; and Scoop, a designer-led womenswear event. Overall the portfolio achieved volume sales of 39,600m2, a 5% like-for-like decline on the prior year with MODA continuing to see the effects of a changing market place for midmarket independent fashion retailers.

A 50.1% stake in Africa Oil Week was acquired in March 2015 and the event ran for the first time in ITE’s ownership in November 2015. Revenues were a little lower than had been anticipated at the time of making the acquisition but this does not undermine the future potential of this event. A further 24.9% stake was acquired in May 2016 following the exercise of the put option granted to the previous owners. The remaining 25% non-controlling interest is also subject to a put option, exercisable after 1 February 2017.

Breakbulk Americas ran for the first time in ITE ownership in October 2015 and achieved sales of 5,200m2 compared with 4,700m2 for its previous event. Due to a timing change associated with venue availability, the event ran again in September 2016 and sold 4,900m2 as the global transportation sector slowed slightly.