Game, Set and Match for Arena Events?
“…The share price hasn’t moved much through the whole of 2021, despite the company demonstrating its continued capacity to pick up prestigious new contracts, such as the award last month of a multi-million pound deal to deliver one of the venue clusters at the Commonwealth Games to be held in Birmingham in 2022…”
With its comprehensive range of events infrastructure services, impressive client list, and international presence, the Arena Events Group (AIM:ARE) would seem an ideal index to the fortunes of the event sector. Unfortunately it’s not at all clear what those prospects are, even should the pandemic continue to gradually recede.
Arena supplies temporary physical structures for outdoor events, offering structures encompassing seating, scaffolding, fencing and barriers, catering facilities, cold rooms, warehouses, ice rinks, airport aircraft hangars, and even frameworks for archaeological digs. The company traces its history back to 1761, when its first incarnation manufactured and sold tents, flags, ship ropes and decorations for public events. Today it employs more than 1,200 staff at 18 depots across the UK, Europe, the US, the Middle East and Asia.
Arena has accumulated an impressive roster of sporting clients, including Wimbledon, the PGA European Tour, the Ryder Cup, The Open, The Jockey Club, the London Marathon, the Masters Snooker championship, the ICC Cricket World Cup, and the Cheltenham Festival. Non-sporting clients include the Hampton Court Palace Ice Rink, the RHS Chelsea Flower Show, and the Winter Wonderland Hyde Park. Since the pandemic the company has extended its service further to provide rather more sober facilities such as infrastructure for Covid-19 test centres and temporary morgues.
The event sector’s abysmal 2020
After building out and consolidating its range of services in 2018 and 2019, Arena entered 2020 with expectations of a record year, boosted by deals for high-profile events including the Ryder Cup and the Tokyo Olympics. Covid, of course, intervened. Pre-pandemic estimates by Allied Market Research forecast the global events industry, valued at $1.1tn in 2019, would be worth $1.6tn by 2028. But by March 2020 the industry had already lost $16.5bn, and by November 2020 52pc of event professionals said they had lost income, while 11pc had been furloughed and 10pc laid off. Through 2020 and early 2021 the industry looked into the abyss, facing the prospect of no event rental revenues as event after event was cancelled or postponed.
As its full year results to 31 March 2021 testify, Arena was not spared. The company’s revenues plunged 55pc to £71.6m from £183.2m, and adjusted EBITDA was down £5.7m from £13.2m. By its own admission Arena’s Middle East and Asia division had ‘a torrid year’, recording a 68pc fall in revenues, down from £118.3m to £37.4m, and an adjusted EBITDA loss of £3.3m, down from £9.2m profit.
The company marshalled a battery of emergency financial measures to pull itself through, most notably two placings, raising £9.5m last April, and £11m this March. Arena secured extended additional overdraft facilities with its bank before taking advantage of a £15.6m lending facility under the UK government backed Coronavirus Large Business Interruption Loan Scheme. A further £3.4m secured through the government’s Coronavirus Job Retention Scheme couldn’t prevent some job losses as the company streamlined its regional structure, merging the management of its UK and Europe business with that of the Middle East and Asia.
Arena eked out some income in the UK through the provision of test centres and mortuaries, temporary structures for military personnel, and archaeological support services for the HS2 rail development, recording UK revenues of £19.6m, down from £60.1m. But it was bolstered by a creditable performance in the US, its provision of structures for several USPGA golf events, temporary Covid testing and vaccination centres, and hospital extensions, bringing in revenues of £34.2m (2020: £64.9m), and an adjusted EBITDA of £10.2m (2020: £5.4m) – the best the company has ever achieved in the US. Arena ended the year with cash of £18.4m and a net debt position of £21.1m.
‘A year of transition’
Looking ahead to 2021-22, CEO Greg Lawless hoped for ‘a year of transition to full normality’ in the expectation that the gradual lifting of social distancing restrictions would finally allow event organisers to schedule with some confidence. Indeed earlier this year Arena felt confident enough to complete its biggest ever acquisition, taking a 50pc equity stake in Aztec Shaffer, a US events company that had been driven to bankruptcy by the pandemic. In addition to the holding Arena contributed $3.35m to the $25.6m takeover. Arena believes Aztec’s significant presence in the US golf sector will allow the company to sharpen its focus on one its target markets. Commenting on the deal Mr Lawless said Arena ‘will immediately start to work with [Aztec’s] senior management to rebuild the business back to pre-Covid levels’, entering into discussions with the USPGA Tour with a view to securing a new multi-year contract.
The acquisition was finalised as the gradual lifting of social distancing restrictions finally began to give the events industry some breathing space. The UK government allowed mass events to open after its Events Research Programme found that coronavirus transmission was no higher among attendees at nine large sports and entertainment gatherings in April and May than in the general population. All venues in England are now open and are no longer legally obliged to implement capacity limits or social distancing measures, a development made possible by the effectiveness and continued rollout of the vaccines.
Three-quarters of UK adults are now fully vaccinated, and 90pc have received at least one dose. Although the tenacious Delta variant continues to weigh on the UK and US economic recoveries, slowing the UK’s growth to a four-month low in July, for example, recent studies show full vaccination halves Delta’s transmission, is 60pc effective at preventing Covid symptoms, and 90pc effective at preventing hospitalisation. The entanglement of the anti-vaxx movement in America’s chronic culture war notwithstanding, 70pc of US adults have had at least one shot of a vaccine, and – after a slow start – the EU met its target of administering one jab to 70pc of adults by July and should have fully vaccinated 70pc in the coming weeks. The bloc as a whole has overtaken the US in terms of first and second doses per 100 people, and the EU vaccination rate is now more than double that of the US and UK.
That progress clearly portends well for a return to some kind of normality for the events sector. But it is far from clear when that will be achieved, or even what the industry’s ‘new normal’ will look like. Although the Euro 2020 football championship offered much needed relief for pandemic weary populations across Europe, studies have shown that it generated multiple super-spreader events, Delta travelling with fans across the continent, and circulating within the dense crowds that gathered to watch matches.
Business is emphatically not yet back to normal. This year’s Rugby League World Cup in England was postponed after the withdrawal of the Australian and New Zealand teams, and the Tokyo Olympics was severely compromised by rising infection rates in Japan. Recognising the sector’s continued challenges, the UK government this month unveiled a much-anticipated £750m insurance scheme for live events. Under the scheme the government will act as a ‘reinsurer’ of last resort, giving British festival and event organisers greater confidence to roll out events this summer and autumn, and prepare for next year.
But it may be that, just as it seems to have done with the world of work, the pandemic has changed the very nature of the events industry. 18 months of restrictions and lockdowns have normalised the concept of online only events, and a new kind of ‘hybrid’ event, blending in-person and virtual participation. For many, Zoom and other platforms offer convenient access to events without the costs of travel or accommodation. It is not at all clear that in-person only events will again become the norm, obliging the events sector to come to terms with a new landscape in which attendees expect the option of virtual as well as physical access. One well established event, for example, the yearly Mipim property fair previously attended by upwards of 20,000 delegates, was replaced last year with a smaller, hybrid event attended by 1,500 people, with thousands more participating virtually.
On the other hand Covid has accelerated the use of technology that can improve in-person attendance. Venues equipped with state-of-the-art wireless infrastructures can improve the quality of experience for attendees, digital tickets expediting the process of ordering food and queuing, and allowing participants to share their conference experience on social media.
Arena’s uncertain path
Arena, then, is a tough prospect to assess. The company duly exhibited the characteristics of a recovery stock after news of the vaccine last autumn, its share price, which had tumbled from 22p to 5p at the outset of the pandemic, soaring to 12p within a fortnight. But it hasn’t moved much since bobbing around the 15p mark through the whole of 2021, despite the company demonstrating its continued capacity to pick up prestigious new contracts, such as the award last month of a multi-million pound deal to deliver one of the venue clusters at the Commonwealth Games to be held in Birmingham in 2022.
It is unclear whether the prospect of a return to normality for the events sector, whatever that means, is already priced in to the value of the share. Investors looking for a quick return from Arena as the pandemic continues to lift may be disappointed. But the company may prove a rewarding longer term investment if it can demonstrate it can adapt to a changed post-pandemic events landscape, and make a success of its strategy to develop its increasingly strong position in the US market.
