Tarsus (LON:TRS), the business-to-business events and media group, is within touching distance of achieving its strategy of delivering 50 percent of revenues from fast growing emerging markets by 2013. According to managing director Douglas Emslie, the group is now intent on bedding down new acquisitions and consolidating its expansion work to deliver greater earnings for shareholders.
Despite macro economic headwinds that have buffeted the b2b business events sector in recent years, Tarsus has grown rapidly by reducing its exposure to slow growth European territories such as France. Instead, deals in Turkey and China, together with an improving performance in its US business, have underpinned revenue growth and given the group a platform to expand further. Tarsus has shown itself to be a strongly cash generative business and while it trades on a premium to the market on a forward P/E of 12x earnings the market appears willing to pay up for the growth, emerging market exposure and strong dividend yield.
Tarsus traded in line with expectations in the 10 weeks to May 14. Of note, forward bookings up to the end of December 2012 stand at 65% of anticipated full year revenues, compared to 61% at the same time in 2010 (on a comparable biennial basis). Meanwhile, bookings are tracking 15% ahead of last year (again, adjusted for biennial events). Those figures are a further boost to Tarsus’ record full year revenues last year, which grew by 42 percent to £67.1 million while adjusted pre-tax profits were up by 77 percent to £16.8 million.
Tarsus’ focus on emerging markets took a significant step in June 2011 with the £10 million purchase of a stake in one of Turkey’s largest events businesses, IFO. That was followed in March this year with a £15 million deal for a 70 percent stake in Turkey’s Life Media and, more recently, a joint venture in China. All the acquisitions are understood to be performing strongly – reinforcing Douglas Emslie’s view that the company has got its strategy right...
Douglas, Tarsus has seen some significant changes over the last year. How satisfied are you with the way the business is performing?
There has been a lot of activity! Against a backdrop of a very challenging environment we were very pleased and it really demonstrates the execution of our strategy. Two years ago we set out a strategy of getting 50% of revenues from emerging markets by 2013 and one of the themes coming through now is that in the last 12 months the business has been transformed. We have done two major acquisitions in Turkey, we’re now the third largest organiser in Turkey, we’ve done a deal in a fast growth vertical in China, which obviously we’ll complete once we get regulatory approval in the next few months, and at the same time we’ve done a number of disposals of lower growth businesses, particularly in Europe, and particularly France. Looking at the macro position, the assets are totally different today to what they were 12 months ago in terms of their growth profiles and I think, in terms of looking at what’s going on in the world, we’ve got our strategy right. We are focusing very much on the growth market, the emerging market and we have also got a very good, solid business in America.
It was interesting to see that the American business did so well last year. You must have been pleased to see that?
Yes and actually for us America has got even better this year – in January it was just like someone flicked a switch. Americans are very much focused on growing their revenues; they are looking to grow their businesses, they are not looking at cutting costs, they are investing, which is good for us in terms of our exhibitions. Across our three divisions, whether it’s Off-Price or the medical or the labels business, the sales in the first four months of this year have been very, very strong in America. There is definitely a different mindset in America and I think America is going to do a little better than people think.
I think Europe is going to do worse than people think and our strategy of being underweight and reducing in Europe has definitely been the right one. Going forward I think it is all about what happens in America and actually choosing the right emerging markets. For us that’s China, it’s Turkey, it’s the Middle East and next year we’re launching some shows in Indonesia because we think that is going to be another very attractive market. Over the last five years all the emerging markets have done well but actually I think going forward it’s about choosing the right ones because people are going to start to differentiate in terms of good markets and markets that are not going to grow as fast.
Do you think there is more that Tarsus could do in the US?
Well the American market is the biggest in the world but it is also a very mature market. There are big acquisitions and there will be big acquisitions probably off private equity portfolios in the next 12 months but they’re not of interest to us because they tend to be big, mature and low growth. What we are looking for is sectors that are in transition. It’s like the medical business; that absolutely fitted our criteria in America where you’re moving from disease-based medicine to preventative medicine. What we have seen there is more and more doctors looking to get into preventative medicine and get trained in that arena because insurance companies are paying less and less for normal disease based procedures. However, finding those sets of opportunities is difficult – we’d love to do another one like that in America but I think the opportunities will be few and far between. We are very much focused on the organic growth in America, especially in the medical business which is still growing double digit.
In terms of going forward, Europe is now less than 10% of our business. To be honest we would prefer it to be even smaller because we just don’t see Europe in the next 10-20 years doing anything other than continuing its decline. It’s not very encouraging.
From the numbers, and the latest deals, it looks like your objectives under the 50/13 strategy have been met. Is that the case?
Well it is “substantially complete” in that if we look at the pro forma numbers for 2011 with the acquisitions we’d be about 45% and looking at analysts’ consensus for 2013 we’d be about 47%. So with some additional launches and a few small bolt-on acquisitions we are within touching distance.
How will that strategy change now – will it be a case of taking those businesses and expanding them within their regions?
I think so. We have created the footprint and really it moves then to growing the earnings per share as a result of having those faster growth assets and faster growth markets. In 2013 we will have executed the strategy but the strategy will continue; it is going to be an evolution of what we have created and drive the benefits of that into earnings per share for investors.
Investors supported the share placings connected to the two Turkish acquisitions. What can they expect to see from you during the next year?
Yes, our investors have been very supportive. Our strategy now is all about what can we do to actually accelerate the growth in 2013; that’s really what we’re focused on as a business. For us, 2012 has got off to a very good start but the real benefits of everything that we have done in the last 12 months are going to come through in terms of the earnings delivery next year. So we’re excited and we’re pleased that we took these steps and we executed rather than talked about it, because the world economy is definitely going the way we thought it would, probably Europe being worse than we thought it was, and the emerging markets, America being better. In terms of our portfolio we are happy in terms of the decisions that we have taken.
Douglas, thank you for your time.
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