- Recession fears weighing heavy
- Companies can adjust to lower demand, however
Few industries felt the impact of Covid-19 as keenly as the corporate events sector. When trade shows, conferences and exhibitions were cancelled overnight, the likes of Hyve (HYVE) and Informa (INF) were forced to tap investors for money, and still plunged into deep losses during lockdown. Companies such as Relx (REL) and Euromoney Institutional Investor (ERM) also felt the pressure, but were buoyed up by their more defensive data divisions.
Two and a half years later, in-person events are back. According to its latest results, Relx’s ‘exhibitions’ arm tripled its adjusted operating profit in the six months to June 2022. Informa – which banked a £1.1bn pre-tax loss in 2021 – also noted “strong growth” in events and has reinstated its dividend, while Euromoney is “very encouraged” by its booking patterns.
It is important to put the latest figures into context, however. While Relx’s events arm reported excellent growth, divisional revenue reached just £394mn in the first half of 2022, compared with £684mn in the first half of 2019. Margins have also shrunk from 34 per cent to 15 per cent, meaning adjusted operating profit remains 75 per cent lower than pre-pandemic levels.
Informa’s markets division – which hosts major exhibitions, together with virtual events and online marketplaces – finds itself in a similar position. In the six months to 30 June, revenue more than doubled to £421mn – but reached just 56 per cent of pre-pandemic levels. Meanwhile, adjusted operating profit remained 71 per cent lower than in 2019.
When asked about these figures on a results call last month, Informa’s chief executive said two years of rescheduling and postponement meant 2022 was "always going to be a slightly out-of-cycle year”. Many events groups are also exposed to China, where ongoing lockdowns have thwarted the return of large get-togethers (Asia now accounts for less than 1 per cent of Hyve’s sales, compared with 12 per cent before Covid struck).
China’s lockdowns do not fully explain the industry’s lukewarm recovery, however. In normal circumstances at Relx, for instance, China only generates a single-digit percentage of overall exhibition turnover. There are still unanswered questions, therefore, about how quickly people from across the world will return to corporate events after Covid – and perhaps more importantly, how an economic downturn could affect attendance.
Recovery meets recession
The Center for Exhibition Industry Research (CEIR) – which tracks the performance of US business-to-business exhibitions – predicts that the sector will fully recover from the pandemic in 2023. Indeed, the CEIR Total Index is due to exceed 2019 levels by 2 per cent next year and by 4.5 per cent in 2024. The index looks at exhibit space sold, professional attendance, the number of exhibiting companies, and gross revenue.
However, CEIR also notes that there is a “high correlation between performance of the exhibitions industry and the state of the macroeconomy”, as the participation of both exhibitors and attendees is determined by the underlying strength of supply and demand. The industry was hit hard by the 2008 financial crisis, only recovering its losses and surpassing its previous peak in 2018, according to the research group.
As we hurtle towards another recession, this isn’t cheering news for shareholders. “Investors are very cautiously positioned on this whole space,” said Thomas Singlehurst, head of European media equity research at Citigroup. “There’s just this feeling that [the stocks are] cyclical so there’s a punch in the face coming.”
Singlehurst is more optimistic, however, arguing that events companies have an “attractive profile” despite their cyclical nature. “Because their cost model is very variable, and they have such a long sales cycle – they know what their revenues are going to be 10 or 12 months ahead of the event taking place - they can nearly always trim their costs to meet their revenue. During a downturn their margins usually remain fairly flat,” he said.
Sideshow status
Many of the media companies in question originally owned trade publications, and earned money from advertising and organising big events to their readerships. When print journalism took a turn for the worse, they harnessed their specialist knowledge and moved into market intelligence and academic publishing, often with events serving as critical industry get-togethers.
It’s hard to shake the feeling that several of these companies – which have cleverly monetised huge archives of old content, and have plenty of growth opportunities – are now being held back by corporate events. Relx, for example, continued to grow its profits during the pandemic despite its weaker exhibitions division. It is now in a position where its biggest data and analytics segment generates defensive, recurring revenues and margins of 37 per cent. In contrast, exhibitions has a choppy sales record and 15 per cent margins.
Perhaps unsurprisingly, the industry has begun to fragment. In 2018, Ascential (ASCL) sold its exhibitions arm to Hyve, then ITE, to focus on “higher growth areas”. Informa is now in the process of selling off its intelligence arm to focus on events and academic publishing, while Euromoney is due to be split in two after accepting a £1.7bn takeover bid by two private equity groups.
How this will play out remains to be seen. Citigroup’s Singlehurst argued that a “more holistic B2B offering” is important in the wake of Covid, with business communities keen to reforge links in the real world. One thing is clear, however: a surge in socialising does not spell automatic success for the bruised events sector.
