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CEO & Chairman's Statement
ITE Group plc
Preliminary Statement for the year ended 30 September 2002 Comments by the Chairman and by the Chief Executive We are encouraged by our results for the financial year ended 30 September 2002 as, despite the most challenging global economic conditions faced by the business to business media sector for more than a decade, they have exceeded market expectations. It was our objective this year to refocus the group on its most profitable business and to address the structural and financial issues that were the result of the previous acquisition programme and we have made solid progress in both of these areas. We simplified our organisation and corporate structures in Russia and the CIS, Turkey, Egypt and the Czech Republic. We also divested our interests in Indonesia. We have incurred, or provided for, the various non-recurring costs of the rationalisation programme and have reviewed the carrying values of our continuing investments and prudently written them down where appropriate. Our exposure to future cash expenditure in relation to past acquisitions is now short term and insubstantial. Although the rationalisation programme is now largely complete, we are continuing to review our business and strategy to ensure that we are focussing on our fundamental strengths and maximising shareholder value. Financial performance Turnover and Gross Profit for the period at £52.4 million and £21.4 million exceeded market expectations. On a comparable basis this represented year on year revenue growth of 11%. Trading in Russia and the CIS has been particularly strong with almost all our events, other than those focused on the information technology sector, performing at or above expectations both in terms of metreage and yield. Gross margins slipped from 44% to 41%, due to poor results from various technology related events, the underperformance of our Balkans business and 2002 being the year without our highly profitable biennial Moscow Oil and Gas event. We would expect margins to improve for 2003. The contribution from our Associate partners was below expectation, particularly in Egypt. ITF in Turkey, however, performed better than recently expected, allowing for the economic crisis experienced in 2001, which meant that three key shows had to be postponed beyond the 2002 financial year. Headline profit before tax, amortisation and impairment of goodwill and investments and other non-recurring items was £10.8 million (2001: £13.5 million). This result reflects the absence of contribution from our key biennial events (held in ‘odd’ years), and an increase in overheads due to the strengthening and broadening of the management team that we highlighted in the announcement of the Interim Results. Further, this result was achieved after the absorption of a currency exchange loss of over £1.0 million, largely related to the weakening of the US dollar throughout the year. The one off non-recurring costs of £2.9 million, which relate to the loss on disposal of subsidiaries of £0.5 million, operating losses of £1.4 million and losses from associates of £1.0 million, are marginally less than we anticipated at the time of the Interims. We also reviewed the carrying values of all ITE investments and determined that it is prudent to write down Intermedia which specialises in organising new media events (£2.8m), X-RM which focuses on software development (£0.5m), EUF in Turkey (£1.3m) and MEC whose business relates to Egypt (£1.2m). Total impairments amount to £6.2m, in line with what we stated at the time of our Interim results in May, and lead to a loss before tax of £405,000. The effective taxation rate of the Group is now 25%, a reduction of 6% on 2001. We believe this rate is sustainable. The balance sheet continues to be very strong with cash of £17.7 million at the year end and net assets of £36.4 million. The Group generated cashflows from operating activities of £10.4 million. Earnings and dividends The headline diluted earnings per share (excluding goodwill impairment and amortisation and other non-recurring costs) attributable to the Company’s performance is 2.2p per share (2001: 3.7p). Last year as a result of the impact of the permanent impairment adjustments on the reserves of the holding company, ITE was unable to pay a final dividend pending a capital reorganisation. The capital reorganisation was subsequently undertaken and, to compensate shareholders, at the time of the Interim Results your Board paid an interim dividend of 1.45p (2001: 0.5p) to make up the shortfall. Your Board is now recommending a final dividend of 1.0p which gives a total dividend of 2.45p (2001: 0.5p) for the year. A resolution of the Board was passed to cancel the Scrip Dividend Mandate Scheme established pursuant to a resolution of members of the company on 17 November 1998. This decision was based on the earnings per share dilutionary effect that the operation of the scheme was having, bearing in mind the Group’s strong Balance Sheet and current cash reserves. This decision also reflects the absence of the need to raise funds from shareholders in the form of new equity in the foreseeable future, given the current strategic view of the Board. Trading highlights The core business in Russia and the CIS has continued to expand. The performance table below highlights ITE’s top ten most profitable events for the 2001/2002 year. The principal shows have continued to expand in terms of metreage, largely without detriment to average yields.
ITE’s performance demonstrates the resilience of its shows and the leadership position it holds in the key markets and sectors in which it operates. The trading conditions have been robust with particularly strong performances for Mosbuild, Moscow International Travel & Tourism, World Food Moscow and the Moscow International Motor Show. Moda UK, acquired in 2001, has after overcoming early consolidation issues exceeded our expectations, growing its space from 3,000 m2 in February 2002 to 7,800 m2 in August 2002. We have succeeded in recently negotiating new agreements for our major tenancies in Kyiv and St Petersburg, which will secure the future of our shows in these markets and improve our trading position. The Board continues to view its key venue relationships and tenancy terms as fundamental to our business, and it seeks to strengthen these relationships further in order to underpin the quality of our leading events. The exhibition site of Vystaviste in Prague, operated by our associate business Incheba Praha, was severely damaged by the floods during August. With significant effort on the ground, sufficient repairs and refurbishment work were completed to enable improved facilities to be available for the opening of the Motor show in October. The costs for this work, pursuant to the terms of the operating lease, are the responsibility of the owner of the facility, the City of Prague and insurance cover is in place. Board and management changes During the course of the year there have been significant changes to the composition of your Board. Lawrie Lewis resigned as Chairman and stepped down from the Board in December 2001. Iain Paterson was appointed non-Executive Chairman in May 2002. He was formerly a Director of Enterprise Oil plc and has had extensive experience of developing businesses within emerging markets. Stephen Warshaw, who joined the Group as Chief Executive in October 2001 to manage the rationalisation process, resigned from the Board in October 2002 in order to return to his traditional roots in publishing. He has been replaced by Ian Tomkins, who has been Finance Director of the Group for 2 ½ years. We also announced the appointment of Ross Stobie, previously the General Manager of British Gas in India and Moscow, as a non-Executive Director in June 2002. In October 2002, Mr Stobie was appointed an Executive Director and took over as our General Director in Moscow. Our principal objectives in the coming months are to consolidate our leadership status in our key markets and to maintain our solid growth momentum, by securing the key members of our management, reinvigorating our employees after a period of significant change and ensuring that we not only meet but beat any new competition. We would like to take this opportunity to thank all our employees for their support and commitment during what has been a time of significant change for the company. Outlook Our forward order position is solid with 65% of current market expectations for annual exhibition revenue for 2003 sold (2002: 57%). This is an excellent result considering that in 2003 the staging of our exhibitions are further skewed towards the latter months of the year, with the biennial events Mioge and Autosalon being held in June and August respectively. On a like for like basis, sales for the forthcoming year are 17% ahead of the same time last year. Significantly, the Group will benefit from the return of our biennial Moscow Oil and Gas event to be held in June 2003. We will also reap the benefits of the completion of an additional hall facility at our main venue in Moscow, which will enable us to sell more space and grow our largest shows which have become space constrained. The signs of economic recovery and political stability in Turkey are expected to benefit our businesses there. Finally we are delighted to announce that ITE won, in the face of strong competition, the contract to organise the next World Petroleum Congress, which will be held in South Africa in 2005. This Congress, which is organised every three years, is the most prestigious petroleum congress and exhibition and the largest of its kind. Winning this contract is an important step in ITE’s strategy to expand its market-leading Oil & Gas division outside its current key annual and biennial events. We believe that the next year will be a period of further consolidation with our main focus being on organic growth. The distraction of the rationalisation programme is behind us, and we are confident that the structural, organisational and other changes we have made will now benefit the business. We are fortunate that our core markets and sectors have been insulated against the worst effects of the global economic downturn. We expect our business will continue to benefit from these factors.
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