ITE has again delivered record financial results, despite 2012 being the lesser year in its biennial pattern. Revenues of £172.3 million (2011: £155.5 million) have yielded headline profits before tax of £53.0 million (2011: £51.4 million) and headline diluted earnings per share of 16.9p (2011: 16.6p). Reported pre-tax profit was £40.5 million (2011: £39.1 million) and fully diluted earnings per share were 12.8p (2011: 12.6p). The Group finished the year with positive net cash of £13.0 million (2011: £5.5 million), after spending £19.5 million in the year on acquisitions and deferred consideration.
This year has largely been one of internal consolidation following the large acquisitions made in 2011 as well as laying the groundwork for the expansion of its business into the Asian market. The Group has rebuilt its cash position and focused on integrating the new businesses into ITE’s structure. This process is already reflected in the cost base although most of the revenue benefits will only be realised in the future. The Group has made some small bolt-on acquisitions in the year. Two event portfolios have enhanced the business in Ukraine and two smaller regional acquisitions have added scope to our business in India. The Group has announced today the acquisition of a minority stake in Asian Business Exhibition and Conferences (ABEC), the leading independent organiser in India.
Board and Management
On 1st February I joined the ITE Board, having already been a non-executive director of ITE from 2004 – 2006. On 23rd March Iain Paterson stepped down from the Board after 10 years as Chairman, during which time he oversaw a period of substantial growth in the size of the Group’s business, its revenues and its profits. On behalf of the Board, I would like to acknowledge the significant contribution Iain made to the development of ITE during his tenure as Chairman. There have been no other changes to the composition of the Board during the year.
The Board has taken positive steps this year to strengthen further the executive and senior management team in line with the growth of its business. ITE continues to prosper because of the efforts of its staff worldwide and I would again, on behalf of the Board like to express our thanks and appreciation to all the employees of ITE throughout our 28 offices for their significant contribution to another successful year.
ITE’s Board recognises that good corporate governance is in the long term interests of the Group and we are conscious of our responsibilities for setting values which underpin the Group culture. As Chairman, I am mindful of my personal responsibility for leading the Board and ensuring it operates effectively. The Board effectiveness review carried out during the year confirmed the Board and its committees continue to work to achieve the desired results, and the insights gained from this process have been built into a clear action plan for the year ahead. 3
The Board has a good record of maintaining a progressive dividend policy and this year the interim dividend was increased from 1.9p to 2.1p. The proposed final dividend is 4.4p, making a full dividend for the year of 6.5p (2011: 6.1p), an increase of 7%. The final dividend is proposed to be paid on 11th February 2013.
This year, the Group has benefited from good trading conditions most of its markets. These good results were offset by increased competitive activity in our largest market, Moscow. The effects of this new competition have now been absorbed into our results and the trading conditions in our principal markets continue to be buoyant. At 30th November revenues booked for the 2013 financial year are £95 million, in line with the Board’s expectations and representing circa 53% of market expectations for 2013 revenues. On a like-for-like basis revenues are circa 4% ahead of last year, despite movements in exchange rates (principally in Euro to Sterling) which have reduced average Sterling yields by circa 4% against this time last year.
The Group’s portfolio of events are performing well and operating in markets where growth prospects are good. Strong cash flow and an ungeared balance sheet places the Group in an excellent position to continue with its strategy of growing its business both organically and through selective acquisitions. The Board is focused on the execution of this strategy, and remains confident in ITE’s future prospects.
Non Executive Chairman
04 December 2012
Chief Executive’s Statement
The Group’s performance this year
ITE has delivered a good financial performance in its lesser biennial year which reflects a good trading performance in most of its markets together with a first time contribution from acquisitions, but offset by an increase in the cost base of Mosbuild which re-located to a new venue and faced a new competitive threat. ITE has made a number of smaller bolt-on acquisitions in the year in Ukraine and India, but the main focus of management has been to integrate properly and consolidate the large acquisitions which the Group made during 2011.
Revenues for the year of £172 million represent an 11% increase over last year, and volume sales of 799,000m2 represent growth of 24% over last year. These results reflect growth in the core portfolio and recent acquisitions. On a like-for-like basis revenue growth of 3% was earned on volume sales growth of 2%. Trading conditions in most of our markets were consistently strong and most of our markets delivered revenue growth figures of more than 10%, although Moscow and the UK were exceptions to this.
The major impact on our results this year came from ITE’s premiere construction event MosBuild which represents one third of our exhibition business in Moscow. Following a decision by its host venue to launch its own competitive event in the construction sector, ITE had in 2011 made the decision to re-locate MosBuild to another venue which offered more secure terms for its future. The results this year reflect the financial impact of this upheaval but also underpin the strength and resilience of this event. MosBuild in underlying terms stayed broadly the same size – despite facing the dual challenges of re-location and new competition. Exhibition sales achieved were 66,000m2 compared to 77,600m2 in 2011, the change mostly reflecting a biennial pattern within one of its sectors. However the cost base of the show increased by circa £3 million in the new venue, which in addition to the biennial effect on the revenues negatively affected ITE’s 2012 profits by circa £4.5 million. This one-off step up in costs has now been absorbed and sales for the 2013 event are, to date, progressing in line with expectations.
Excluding MosBuild, the like-for-like revenues from the Russian exhibition business grew by 4% this year. Trading conditions in the Central Asia markets were strong and supported a 21% improvement in like-for-like revenues. In Southern and Eastern Europe, good trading conditions helped the region to deliver 6% like-for-like revenue growth, which together with a strong first time contribution from Turkeybuild and the new Ukrainian acquisitions helped the region to its best ever result. Our UK business MODA also had a good year with growth from its minority stakes in niche fashion businesses and a solid performance from its mainstream fashion event.
Development of the business
ITE has focused this year on properly integrating the new businesses it acquired last year, as well as laying the groundwork for developing a business platform in Asia. Two of the larger acquisitions in 2011 were in Russia (MVK and Krasnodar). The Krasnodar business made a full year contribution with revenues of £8.4 million and a profit contribution of £2.4 million, both better than our expectations at time of acquisition. The MVK business in Moscow performed well in delivering revenues this year of £14.8 million and a contribution of £5.2 million, despite the competitive environment and the re-location of some of its events. Turkeybuild, also acquired last year, made its first contribution to ITE’s results and delivered its best ever result with revenues of £7.3 million and a contribution of £3.2 million.
The Russian management team has been consolidated into a regional management structure. The financial and operating systems of the four businesses are now managed on a common platform and the various show identities and brands are being combined. We have identified a number of good opportunities to cross launch events from one region to another and to cross sell between events. Likewise in Turkey there has been a change in management structure to absorb the newly acquired Turkeybuild.
We made some small complementary acquisitions this year which have helped to build the profile of ITE’s business in Ukraine, India and the UK. In December 2011 ITE completed the acquisition of the Autoexpo portfolio of events in Ukraine, which brought a number of complementary events (winter tourism, logistics) into the portfolio, but whose principal asset is the dominant motor show taking place in Ukraine. Later in the year we acquired two events in the beauty sector (Beautex), which is a new sector for ITE, but of considerable growth potential in other regions where ITE operates. In India we made two small acquisitions in the year – one a portfolio of engineering events based in Mumbai and one of construction related events in Chennai. India’s exhibition business is currently regional with no single large exhibition facility, and the route to expansion is through regional cloning. Having a regional capability now provides the Group with a platform for running events in Mumbai and Chennai. In the UK, MODA increased the scope of its London based fashion business through the acquisition of ‘Jacket Required’, a fast growing niche menswear event.
ITE’s priority in Russia and CIS over the next year is to continue the organic growth initiatives started this year. The Group will also continue to look for opportunities to expand the business model, both in-market and by building a coherent exhibition business in Asia. Having done much of the groundwork this year we are well positioned to make good progress next year.
Announced today was the acquisition of a 28.3% minority stake in ABEC, the largest independent organiser in India. ITE plans to co-operate with this new partner and become a majority owner within the next three years. One of the exciting aspects of this partnership is that ITE now has ownership of the premier construction events in Russia, Turkey and India, three of the fastest growing emerging markets.
The international exhibition business
The global exhibition market was estimated to be worth circa $25 billion in 2011. The following table sets out the distribution of the world’s exhibition business and shows that almost half by value is in the USA, and circa three-quarters is in developed markets. There is a broad correlation between the amount of exhibition space in a country and the size of a country’s exhibition industry.
The emerging and developing market exhibition business is small when compared to the developed world, but faster growing. Russia, Turkey and the CIS countries together account for circa $1 billion (4%) of the world’s exhibition business and the Asian markets (China, India and South East Asia) account for circa 10%.
ITE is the eighth largest organiser in the world by revenue, and the third largest in emerging markets. ITE is the largest exhibition organiser in Russia with an estimated market share of over 20%. ITE is in a stronger position in most of its Central Asian businesses with a leading market position and status as the dominant international exhibition organizer. In Turkey ITE has a strong market position (8% of the market) though its business is more locally based and there are a number of other international organizers competing in different sectors. All of these markets are expected to grow in the future at above average rates for the industry and a large part of ITE’s strategy is based around ensuring we continue to be market leaders in these markets.
ITE aims to apply its free cash flow from its exhibition businesses in expanding its business model to new markets, where there is good potential for growth in the future. The current focus is on developing a business infrastructure in India, South East Asia and China to ensure our exhibition portfolio can participate in the expected growth in these regions.
ITE’s objectives and strategy
ITE’s business objectives are to:
- Create sustainable growth in headline earnings per share
- Create and maintain sustainable positions of market leadership in the exhibition business in emerging and developing markets.
ITE’s strategic priorities for achieving these objectives are:
(i) to strengthen and develop existing positions of market leadership
(ii) to expand the business model into new sectors and geographies where there is potential to develop strong market positions
(iii) to grow and improve its portfolio of international exhibition brands
(iv) to invest in the development of management talent in ITE.
ITE’s performance against its strategic objectives is set out below:
(i) To strengthen and develop its existing positions of market leadership:
ITE’s positions of market leadership are founded on its ability to generate international sales, its recognised brands, its local office infrastructure and its longstanding relationships with venues.
International sales strength
ITE’s ability to generate international sales differentiates it from most of its local competition in Russia and the related CIS markets. Through its subsidiary sales offices the Group has established a loyal customer base and a specialisation in promoting sales into ITE’s Russian and CIS exhibitions. In 2012 the total net metres sold by the Group’s international sales offices increased by 18% to 115,500m2. This represents circa 23% of the Group’s 2012 revenues, the same proportion as achieved in 2011 reflecting the acquisition of new businesses which are mostly weighted towards local sales. The Group has invested in building-up its international sales presence this year, opening a new office in Malaysia to target potential customers from South East Asia. Approximately 9% of revenues were sold by the Group’s London office, 4% by its German office, 3% by its Chinese office and 3% by its Turkish office.
ITE’s international brands
ITE has established strong brand identity in certain exhibition sectors. In particular, the Build brand in construction, the Oil & Gas events brand, the ITE Travel exhibition and World Food brands all have strong reputations as leading events in the Russian and CIS markets earned through more than fifteen years of sustained good performance. The Group is working to increase recognition for these brands in other emerging markets. There are also a number of new and developing local brands in security, transport, packaging, printing and mining events. The Group is working to consolidate and establish these brands more visibly in the international exhibition world.
Building ITE’s local office infrastructure
ITE’s brands have built their reputation through sustained delivery of successful exhibitions to customers. The foundation of this is in ITE’s local offices which, like its exhibitions and brands, have been in place for nearly 20 years and today employ over 800 staff who organise the details of staging an exhibition. Critically they own and manage the database of visitors necessary for making an exhibition successful for ITE’s customers. ITE’s local offices are a competitive advantage over other international organisers and a barrier to entry for new organisers wishing to run events in these markets. ITE continues to strengthen its local office presence through investment in infrastructure and training its staff. There is a high level of equity ownership in the Group with more than 51% of staff participating in equity schemes of some description.
Maintaining venue relationships
ITE has established long-standing relationships with the venues that host its exhibitions. Historically ITE has supported the development of venue facilities which in turn has helped the Group’s exhibitions to prosper. Through this ITE has established rights to run its main exhibition themes in its chosen venues at the time of its choice. ITE has continued to work on maintaining and improving the venue relationships that underpin its business. Most of ITE’s major events have agreements which provide for venue facilities for at least three years ahead. This year ITE has agreed outline terms for holding its shows in the new St Petersburg venue, which is due to be completed by 2014.
(ii) To expand the business model into new sectors and geographies where there is potential to develop strong market positions.
In existing markets this strategy means targeting new sectors or regions in which to acquire or develop businesses where there is potential for the participation of international exhibitors. In new markets, ITE is targeting the development of exhibition businesses where there is clear opportunity for strong future growth.
This year the Group has expanded the industry sectors in its Ukrainian business. Through its acquisitions of Autoexpo and Beautex the Ukrainian business has gained exposure to the automotive and beauty/cosmetics sectors. The beauty sector is new to ITE, and one we hope to be able to replicate into other markets in the near future. The Group aims to increase its involvement in a broader range of sectors in India, and made two small acquisitions this year, one in the industrial machinery sector and one in the construction sector.
(iii) To grow and improve its portfolio of international brands.
The Group’s management has been working to improve the strength of ITE’s existing international brands and to improve international recognition of its local brands. As part of this, some industry vertical groupings have been established to ensure consistency of presentation and message across the Group. Developing the international recognition and strength of its brands improves the Group’s ability to successfully ‘clone’ its events into new geographies.
(iv) To invest in the development of management talent in ITE.
We have made some good progress in developing the strength and depth of the management team in the year as well as improving the communication between the different offices. We have further developed our Group intranet as well as opening up communication by functional management i.e. connecting staff lines across the different offices such as construction / marketing / IT. We have started on a rolling programme of internal senior management and functional conferences, and launched a series of leadership training courses to further develop our internal management resource.
Chief Executive Officer
04 December 2012
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Reports may include forward-looking statements made by the directors in good faith based on the information available up to the time of approving their publication. These statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying such forward-looking information.