Hyve turns its back on emerging markets

Reading Hyve’s (HYVE) annual results is hard work. The accounts are filled with restatements, adjustments and discontinued operations, making it difficult to unearth what is actually going on at the international events company. 

If headline figures are to be believed, everything is rosy. Revenue overtook pre-Covid levels in the second half of 2022, orders are strong, and event numbers are rising fast. This excludes a number of important factors, however. 

First up: China. Before Covid struck, over 10 per cent of Hyve’s revenue and 19 per cent of its adjusted profit before tax came from India and China. In 2022, less than 5 per cent of turnover from continuing operations came from Asia, and the region reported a loss of £2.1mn. Given the Covid situation, recovery could be a way off. 

Second: Russia. Russia used to account for almost 30 per cent of Hyve’s total sales and half of group profits. However, when Ukraine was invaded, Hyve had to get rid of its Russian business fast. This resulted in a loss on disposal of £38.3mn – above management’s £27.5mn estimate. While Hyve could receive an earn out consideration of up to £72mn over the next 10 years, it’s unclear when or if it will see the money.

Management argues that the shift away from Russia and China – as well as the disposal of businesses in Turkey and Indonesia – is part of its transformation plan. The group is actively turning its back on emerging economies and cementing itself in the West. However, it is still unclear how Hyve will replace these formerly profitable areas of the business.

Meanwhile, continuing operations need close scrutiny. In 2022 and 2021, Hyve reported large statutory losses and adjusted them into profit. Adjusting items totalled £42.4mn this year, and included amortisation of intangible assets, impairments, transaction costs and revaluations. 

Moreover, goodwill and intangible assets form 70 per cent of the group’s asset base. Given the amount of chopping and changing that has happened over the past few years – particularly relating to the revaluation of assets and liabilities – this makes us uneasy.

There is plenty to feel optimistic about. Events in the West are clearly picking up, and the group has noted strong forward bookings of £98mn, compared with £67mn the year before. However, a run of statutory losses, big adjustments, and losses upon disposal do not inspire confidence. Hold.  

Last IC View: Hold, 88p, 24 May 2022