2016 Interim Results Announcement

Good performance in challenging trading conditions
  Six months to
31 March 2016
Six months to
31 March 2015
Actual Like-for-like
Volume sales 340,100 m2 276,500 m2 +23% -4%
Revenue £63.6m £56.1m +13% -4%
Pre-tax profit £10.6m £7.8m +36%  
Headline pre-tax profit* £19.0m £17.5m +8%  
Diluted earnings per share 2.8p 3.0p    
Headline diluted earnings per share** 5.2p 6.0p    
Interim dividend per share 1.5p 2.5p    
Net debt £69.6m £56.1m    
  • Acquisitions drive growth and further diversify the Group away from Russia
  • Trading in Russia is still challenging but prospects are improving
  • Results are in line with management expectation
  • Interim dividend reduced to restore earnings cover to over 2 times
  • Confidence in full year outcome with over 90% of revenues for FY 2016 contracted
  • Appointment of new CEO announced
Russell Taylor, CEO of ITE Group plc, commented:
ITE has delivered a good first half performance showing the benefits of the Group’s diversification strategy. The trading environment in Russia and Central Asia continued to be challenging over the first half but the acquired Breakbulk portfolio and Africa Oil Week  together with the increased stake in ABEC’s Indian events portfolio have supported a good performance from the Group’s business in Asia and the Rest of the world.
“Looking forward, prospects in Russia are improving and the economy is expected to show growth in 2017.  ITE has a sound financial platform with good operating cash flows and the Group is entering the second half of the year with good visibility on current year bookings. Accordingly the Board has confidence in the full year outcome.”
*  Headline pre-tax profit is defined as profit before tax, excluding amortisation of acquired intangibles, impairment of goodwill, profits or losses on disposal of Group undertakings, revaluation of financial liabilities in relation to minority put options, imputed interest charges on put option liabilities, direct costs on completed and pending acquisitions & disposals and tax on income from associates – see note 5 to the consolidated financial statements for details.
**  Headline diluted earnings per share is calculated using profit attributable to shareholders before amortisation of acquired intangibles, impairment of goodwill, profits or losses on disposal of Group undertakings, revaluation of financial liabilities in relation to minority put options, imputed interest charges on put option liabilities and direct costs on completed and pending acquisitions & disposals – see note 8 to the consolidated financial statements for details.
Where used, like-for-like measures are stated on a constant currency basis adjusted to exclude acquisitions impacting results for the first time, event timing differences and biennial events.
Russell Taylor, Chief Executive Officer
Des McEwan, Interim Finance Director
ITE Group plc 020 7596 5000
Charles Palmer/Emma Appleton FTI Consulting 020 3727 1021
Nick Westlake/Toby Adcock Numis 020 7260 1000

Executive summary
ITE has delivered a creditable set of interim results, against some challenging trading conditions in its core markets.  Revenues of £64 million for the first six months are 13% higher than last year and headline profits before tax of £19 million are 8% better than over the same period last year. Higher minority interests caused headline fully diluted earnings per share for the first six months to be lower than last year at 5.2p (2015: 6.0p).  These results reflect two compensating changes over the same period last year.  The full benefit of acquisitions made in the last financial year, together with the effect of consolidating the results of our former Indian associate business, have helped to increase underlying operating profits by circa £6 million.  As anticipated, these gains were partially offset by the ongoing effect of the current trading environments in the oil and gas dependent economies of Russia and Central Asia, and the effect of their weaker currencies on our results. 
The newly acquired businesses making a first time contribution were Africa Oil Week and some of the Breakbulk portfolio that did not take place in the previous financial year.  Together with the benefit of consolidating the results of ABEC, these additions have helped to move the Group’s business towards a more balanced geographical portfolio.  The integration and performance of these new events has been successful and broadly in line with expectations at the time of acquisition.  Africa Oil Week was slightly shy of its targets, but Breakbulk was better than expected.  We are now working more closely with ABEC’s management and are in the process of combining our businesses in India under one management structure.
The Group has continued to develop its business where opportunities arise in line with strategy.  In January 2016 the Group announced a small bolt-on acquisition of an industrial equipment show in China, Shanghai Ebseek, which has provided a platform for ITE to develop its business in the Shanghai exhibition market.  The Group is also well advanced in its plans to acquire a further small and complementary business in Shanghai, which will complete its current pipeline of acquisitions.  The Group is now anticipating a period of integration and development for its recent acquisitions.
The oil dependent economies of Russia, Kazakhstan and Azerbaijan account for approximately 50% of our business, and all continue to reflect the difficult trading environment and weaker currencies we have experienced since the fall in oil prices.  In Russia like-for-like volumes over the first half were 5% lower than this time last year, in Kazakhstan 10% lower and in Azerbaijan 22% lower.  The Group has as usual taken action to reduce costs in line with lower volumes, and to minimise the impact of poor trading in these countries on the Group’s financial results.  The impact from lower trading activity in these countries on first half profits was a £0.7 million reduction over the comparative period for last year, with an additional £0.6 million attributable to weaker currencies in these countries. 
In other regions, the Group enjoyed a good trading environment in most of Asia, except the oil dependent Malaysia, and benefited from a strong performance from our Chinacoat joint venture business in China.  Turkey has had a more difficult trading environment latterly, mostly in international sales, reflecting its political differences with Russia and other neighbouring Middle Eastern countries.  Russia and Turkey have been well established trading partners over the last 10 years and the sudden disruption to their trade has impacted on our business in both countries.
For most of the first six months the Group has been reporting against comparative numbers for last year which included bookings made in a better economic environment.  This timing delay will continue to have some impact on the third quarter results, but is expected to be insignificant by the beginning of the next financial year.  The recent greater stability in oil prices has supported a more positive outlook for Russia, which is now expected to have some economic growth over the course of the calendar year 2017.  This will suffer the same timing delay before it is fully reflected in our results, but the stronger currencies which parallel higher oil prices will have a more immediate effect.
The Group enters the second half of the year in a sound financial position with secured bank facilities and good cashflows. The Group will continue its successful strategy of developing market leading positions in higher growth markets and diversifying its geographic portfolio. The Group has a proven and resilient business model, with a flexible cost base which is well suited to weathering the adverse economic conditions in the oil dependent economies of Russia, Kazakhstan and Azerbaijan.
Over the first six months revenues from the newly acquired businesses have compensated for the like-for-like decline reported in the Group’s core markets. As at 6 May 2016, the Group had booked revenues for the current financial year of £118 million (2015: £122 million). On a like-for-like basis this represents a decrease of 8% against the comparable figure for last year. With this good visibility on current year bookings the Board remains confident in the full year outcome and in the Group’s future prospects.

Financial performance
Revenues for the first six months of the year were £63.6 million (2015: £56.1 million), which was in line with expectations. The uplift in revenue reflects the Breakbulk Americas and Africa Oil Week events running for the first time under ITE’s ownership together with the effect of ABEC becoming a subsidiary. These acquisitions and the positive biennial pattern in the first six months have more than offset a challenging trading environment in Russia and Central Asia.  
Headline profit before tax for the first six months of the year was £19.0 million (2015: £17.5 million) reflecting the first time contribution from acquisitions (£5.5 million), the effects of difficult trading conditions in Russia, Central Asia and Turkey (£1.4 million), lower currency translation rates (£0.6 million) and a smaller one-off foreign exchange gain of £1.5 million (2015: £4.1 million).
The average exchange rates used over the first six months of the year are:
  Six months ended 31 March 2016 Six months ended 31 March 2015 Movement
Ruble 103.2 85.2 -17%
Tenge 478 280 -42%
Turkish Lira 4.3 3.7 -14%
Azerbaijan Manat 1.82 1.29 -29%
Reported profits before tax were £10.6 million (2015: £7.8 million).  This includes a £1.2 million impairment charge writing off the remaining intangible assets and goodwill of our Novosibirsk office due to the sustained downturn in this business.
Headline diluted earnings per share for the first six months were 5.2p (2015: 6.0p) and fully diluted earnings per share for the first six months were 2.8p (2015: 3.0p). The decrease in earnings per share is due to ABEC and Africa Oil Week not being fully owned by the Group. The Group’s cash flow generated from operations over the first six months was £18.0 million (2015: £18.0 million), and during the period £16.3 million has been applied to fund acquisitions and £12.4 million to dividends, resulting in the Group’s net debt standing at £69.6 million at 31 March 2016 (2015: £56.1 million).
The Board has today announced the appointment of Mark Shashoua to be CEO of ITE Group PLC with effect from 1 September 2016.  The Board is delighted to have found such a high calibre individual with extensive experience of managing and developing exhibition companies on a worldwide platform.  The current CEO, Russell Taylor, will be stepping down from his position in line with his and the Board’s established succession plans.  He will continue to fulfil his current role for ITE in the interim period and to make a full handover to Mark over the next 12 months.
We have previously reported that Neil Jones was due to leave the Board in January 2016 and would be succeeded by Des McEwan as an interim Finance Director until a final appointment was made.  The Board has conducted an extensive search for a new CFO and a decision will be made in consultation with the new CEO and announced in due course.
The Board has maintained a progressive dividend policy over the last 15 years which has mirrored the sustained growth in its core markets.  Throughout, the Board has sought to maintain a sensible level of dividend cover, whilst following its strategy of diversifying away from its dependence on its historic core markets.  With the current lower levels of trading in Russia and Central Asia, the Board believes that rebuilding dividend cover to historic levels of more than 2 times earnings is in the best long-term interest of shareholders. Accordingly the Board has announced a reduced interim dividend this year of 1.5p (2015: 2.5p). The Board expects to be able to resume a progressive dividend policy in the future and will seek to maintain over two times earnings cover going forward.
Trading highlights and review of operations
Over the first half of the financial year, the Group experienced the benefit of the diversification undertaken in recent years. Newly acquired events more than offset the downturn in our established core markets. During the period the Group organised 134 events (2015: 127 events) which generated actual revenue growth of 13%. Like-for-like revenues were 4% lower than for the same period last year.
Actual volume sales for the period were 340,100 sqm (2015: 276,500 sqm), reflecting the acquired events running for the first time and the stronger biennial pattern partially offset by underlying trading conditions in Russia.   Volume sales were 4% lower on a like-for-like basis in comparison to the same period last year.
A summary of the Group’s fully consolidated sales and profits for the first six months of the year is set out below.
  Square meters sold
Gross Profit
First half 2015 276 56.1 22.8
Non-annual 2015 (1) (0.2) (0.1)
Annually recurring 2015 275 55.9 22.7
Acquisitions 66 14.6 7.1
FX Translation - (5.6) (1.7)
Like-for-like change (10) (2.2) (0.6)
Annually recurring 2016 331 62.7 27.5
Timing differences (10) (2.0) (0.9)
Non-annual 2016 19 2.9 1.0
First half 2016 340 63.6 27.6
As expected, the effects of the economic slowdown in Russia continue to cycle through our calendar of events.  As a result, like-for-like volume sales in Russia over the first six months of the year were 5% lower than the comparative period.
The Group’s Russian offices continue to run market-leading events, across a number of industry sectors. In our biggest market, Moscow, like for like volume sales were down 5%. The country’s farming and food sector has benefited from reduced international competition, and our agriculture shows in Moscow and Krasnodar have seen good growth, helped by the new larger venue in Krasnodar.   However, the construction sector remains one of the worst affected in the current trading environment, and our office in Novosibirsk in Siberia was the hardest impacted of the Group’s Russian offices with a decrease in like-for-like volumes of 23%, reflecting the office’s dependence on construction events. Moscow’s largest event in the first half was the Moscow International Travel & Tourism event, which suffered a 30% decline in volume sales to 11,700sqm (2015: 16,400sqm) reflecting the withdrawal of Turkish exhibitors and a reduction in other international stands. 
Central Asia
Like-for-like volume sales for the first six months in Central Asia were 11% lower than for the comparative period.
The largest part of the Group’s business in the region is Kazakhstan, which reported a 10% decrease in like-for-like volume sales. The largest event in the region is the Kazakhstan International Oil & Gas Exhibition (KIOGE), which was smaller than this time last year at 5,800sqm (2015: 6,800 sqm), reflecting the impact of the oil price and local currency devaluation on the region.
Eastern & Southern Europe
In Turkey, the Group has seen a reduction of 3% in like-for-like volumes due to regional unrest and the deterioration in the country’s relationships with its local trading partners. The largest event taking place in the first half was the travel event EMITT, which realised volumes of 26,700 sqm against a challenging backdrop facing the Turkish tourist industry. Eurasia Rail took place for the second time in ITE’s ownership and again sold nearly 10,000sqm demonstrating its resilience to lower levels of international participation from Russia and Egypt.
Ukraine now represents less than 3% of Group profits, but in the first six months grew like-for-like volumes by 24%. The office continues to run good quality events and the recovery in exhibition participation was evident across the whole portfolio.

As part of the Group’s strategy of geographical diversification and expansion into Asia, the Group exercised its call option to take a majority stake in ABEC in October 2015. The significant events in the period since acquisition were the autumn Acetech construction events which overall grew volumes over their prior year comparatives by 1% and revenues by 5%, with growth being constrained by the current venue situation.  
The Group has a 50% interest in Chinacoat, the leading chemicals and coating show in China. Chinacoat was held in Shanghai in November 2015 and reported both record attendance and record volume having sold 40,000 sqm, up 16% on the equivalent Shanghai event last held in November 2013. 
Rest of the World
Breakbulk Americas ran for the first time in ITE’s ownership in October 2015 and achieved sales of 5,200 sqm compared with 4,700 sqm for its previous event, which was slightly ahead of expectations.  The first Africa Oil Week held under ITE’s ownership in October 2015 saw revenues 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. 
Volume sales from the Group’s UK fashion portfolio were similar to last year. Trading remains challenging for the mid-market focused MODA event held at the NEC in Birmingham and volumes were slightly down on prior year, selling 15,000 sqm (2015: 16,700sqm). This was mostly offset by growth in Scoop, our premium womenswear portfolio, based in London.

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