Annual Report and Accounts 2006 Tarsus Group plc

To view this page ensure that Adobe Flash Player version 9.0.124 or greater is installed.

Please login or register to make a comment!

...Description...... more. less.

London EC2N 1PH34 Beckenham Road Beckenham Kent BR3 4BR Auditors PKF (UK) LLP Farringdon Place 20 Farringdon Road London EC1M 3AP AnnualReport2006Pages1-9 9/3/07 16:10 Page 4 Tarsus Group plc Worldwide Operations Discount Goods Labels and Packaging Caroo France Medical Other Events AnnualReport_2007_M.qxd 2/3/07 12:22 Page 13 RESULTS Weare pleased to report that 2006 continued the trend of strong progress at Tarsus despite a significantly weaker US dollar affecting the majority of our revenues inthe year. This record performance resulted from the strength of our established brands and the growing maturity of the revenue streams from our newer products. The Group's largest event in the year, Labelexpo Americas, achieved revenues 15% higher than the equivalent 2004 show. There was further good progress in France where this division 9s largest show, Heavent, grew revenues by 22%. Revenues from emerging markets doubled on a like-for-like basis to £1.0 million and our online-led business, Caroo, achieved revenues of £1.5 million with organic growth of 63%. Group revenue was £26.3 million (2005: £23.2 million), an increase of 14% with underlying organic growth of 15% (excluding acquisitions that impacted for the first time in 2006). Profit before tax was £7.0 million compared with £5.5 million in 2005. Adjusted profit before tax* was up 21% to £7.3 million (2005: £6.0 million). Basic earnings per share were 9.9p (2005: 9.0p) and adjusted earnings per share* rose by 10% to 10.3p (2005: 9.4p). Adjusted operating cash conversion* continued to be strong, representing 110% of adjusted operating profit (101% in 2005). The continued good conversion rate reflects our strong focus on managing working capital as the business expands. Your Directors are proposing a final dividend of 2.75p per share, bringing the total for the year to 4.0p per share - an increase of 23% over 2005. The final dividend, whichis subject toShareholder approval, is proposed to be paid on 27April 2007toShareholderson the Register of Members of the Company on 9 March 2007. Wewill continue to offer a scrip alternative. OPERATING REVIEW US Overall, US revenues were up 12% on a like-for-like basis. Labelexpo returned to the US in 2006 and the exhibition in September performed extremely well, with revenues 15% ahead of the equivalent event in 2004. Following strong attendance figures, re-bookings for the 2008 event were very encouraging. Our Off-Price clothing division performed well in a difficult retail trading environment, with revenues up 2%. This division continues to benefit from the growth of value based retailing. The Packaging Summit in May, launched in 2005, significantly increased both revenues and buyer attendance. In November, the Group added a fifth major division with the purchase of 80% of Medical Conferences International Inc. ( cMCII d). The acquisition was accompanied by a vendor placing of 5.3 million new ordinary shares at 207p, raising approximately £10.5 million after expenses. MCII is the leading global anti- ageing and regenerative medical events business with its largest annual events in Las Vegas, Chicago and Orlando. It is a strong brand, but an immature one, and the scope for further development is substantial. December saw the first contribution from the MCII acquisition, with the Las Vegas event taking place. Revenues and attendees were up by 55% and 34% respectively compared with 2005, both slightly ahead of our expectations at the time of acquisition. Europe The French exhibition market is the second largest in Europe after Germany and cultural and language differences dictate that it is an important marketin its own right. The French business has been progressively developed by the Group over the last two years with a view to increasing its scale and broadening its sector coverage. To this end, Proseg, the leading annual facilities management exhibition, was acquired in October and earlier in the year we bought out one of the minority interests in our Direct Marketing show. As part of the same transaction we sold a small software exhibition, Progilog, to the vendors. In France, organic revenues grew by 11% driven by Heavent, where revenues increased by 22%, and our IT portfolio launches. Following the purchase of Proseg, Tarsus has the market leading exhibitions in four sectors 3IT,Marketing, Education and Facilities Management. Proseg will now be the second largest exhibition in the French portfolio. The outlook for the French economy is improving and with the business benefiting from increased scale, the prospects for our French division are encouraging. Chairman 9s and Managing Director 9s Statement AnnualReport_2007_M.qxd 2/3/07 12:21 Page 2 In the UK, our Labels & Labeling magazine had another good year with revenues up by 10% to £1.5 million. In January 2006, the Group purchased DH Publishing Ltd. for an initial consideration of £350,000. This business, which is focused on the b2b global online recruitment industry, has been incorporated into our online-led business, Caroo, which made excellent progress in 2006 with organic revenue growth of 63%. Caroo is focused on the b2b marketplace and now operates in three areas 3 gifts, events and online recruitment and its growth is benefiting from the migration of marketing spend to the internet. While the business is small, within the context of the overall Group, the prospects for future growth remain excellent. Emerging Markets On a like-for-likebasis, emerging market revenues doubled to £1.0 million in 2006, aided by the launches of Label Summits in India, Japan, Bangkok and South China. Our Chinese outbound travel exhibition COTTM (formerly BITTM) made good progress with a doubling of visitor numbers. In July, the Group entered into a strategic partnership withShanghai ModernInternational Exhibition Company,asubsidiaryof the Shanghai World Expo Group. Shanghai Modern is a market leader in China in the advertising, packaging and printing sectors. This partnership formed partofacontinuing development of our Chinese portfolio, which has taken another material step forward following the recently announced partnership withIntexShanghai Company Ltd. Weare focused on developing our presence in China and weplan torun ten events in 2007 compared with two in 2006. In addition, we are continuing to build our two global brands, Labelexpo and the Anti-Ageing Congress, in other emerging markets. OUTLOOK We laid the foundations for Tarsus 9s strong performance in 2006 by increased new product development supplemented by complementary acquisitions. We also took the opportunity to broaden the base of the Group with the acquisition of MCII, a global medical events business. Our focus this year is on driving the organic growth potential of the business which continues to be very second-half weighted. We will beneSt from the return of Labelexpo to Europe in 2007,which is our largest exhibition, and this will reduce our exposure to the US dollar. In addition, we will have a full year of profit contribution from MCII. Your Directorsremain conSdent that 2007 will be another year of strong progress for Tarsus. cWe laid the foundations for Tarsus 9s strong performance in 2006 by increased new product development supplemented by complementary acquisitions. d Left to right: Douglas Emslie, Group Managing Director and Neville Buch, Chairman. Neville Buch Chairman 1March2007 Douglas Emslie Group Managing Director 1March2007 Glossary* Adjusted pro$t before tax: Calculated using proSt before tax adjusted for share option charges, amortisation charges, minority interests 9 share of losses, tax on proSt from joint ventures and excludes proSt on disposal of intangible assets. Adjusted EPS: Calculated using profit after tax attributable to equity shareholders adjusted for share option charges, amortisation charges, minority interests 9 share of losses and excludes profit on disposal of intangible assets. Adjusted operating cash conversion: Cash generated from operations adjusted for working capital acquired/disposed of in the period divided by operating proSt adjusted to exclude results from acquisitions and disposals made during the period. AnnualReport_2007_M.qxd 2/3/07 12:21 Page 3 Tarsus Group is an international business-to-business media group with interests in exhibitions, conferences, publishing and online media. The Group has Sve business divisions: Labels and Packaging; Discount Goods; Caroo; France; and Medical. Who we are 2006 Highlights January "Labelexpo Global Series launches the RFID Smart Labels 8How to 9 Book "Group expands into online recruitment with the acquisition of the b2b global online portal, www.onrec.com February "Record edition of the Off Price Show in Las Vegas "Launch of new exhibition, Onrec Expo in the US March "Record preliminary results for 2005 April "Labelexpo Asia 2005 is recognised as one the top 100 exhibitions in China "Investment and expansion plans announced for Caroo division "Launchof promotional merchandising website, www.promotionalmerchandiseusa.com June "China expansion with new partnership with Shanghai ModernInternational Exhibition Company July "Caroo acquires US-business, www.tsnn.com, the leading online resource for the exhibition industry August "Launch of www.articlespromotionels.fr, a promotional merchandising website in France September "Record interim results "New venue finding website, www.louerunesalle.fr, launched in France "Visitor attendance at Labelexpo Americas 2006 increases by 6% on the last show October "Acquisition of 97.15% of Proseg SARL, the Paris-based facilities management exhibition "BITTM (The Beijing International Travel and Tourism Market) rebrands toCOTTM (China Outbound Travel and Tourism Market) "Packaging Summit in the US tohostWorld Packaging Organization conference in May 2007 "Group acquires a stake in www.eventsreview.com, the IPTV channel for the events and marketing industries November "New division for the Group with the purchase of Medical Conferences International Inc, a leading organiser of medical sector events in the US and internationally Withits head office in London, Tarsus also has offices in Paris, France; Milwaukee and Chicago, USA; Düsseldorf, Germany; and Shanghai, China. Global Offices AnnualReport_2007_M.qxd 2/3/07 12:21 Page 4 The Group has a strong presence in the labelling and packaging industry worldwide. Through its Labelexpo Global Series brand, the company runs biennial shows in Europe, the Americas and Asia. Labelexpo helps individual countries and regions learn about the opportunities to expand their label industries internationally through large exhibitions and smaller conference-led summits. The shows provide a platform for machinery and materials manufacturers to launch, promote and sell new products and technologies. The Label Summits are highly educational conferences which take place in the emerging label markets of Latin America, India, China, Thailand and Japan. Labelexpo has interests in publishing through its magazine, Labels & Labeling. The magazine is the world 9s leading bi- monthlytrade journal for the industry and is read in over 120 countries. Labels & Labeling has a strong online presence withits informative portal providing regular news updates. The magazine also publishes a variety of educational tools aimed at strengthening the industry 9s understanding of its often complex developments. Publications include: the 8Encyclopedia of Labels and Label Technology 9 available in several languages; the 8Labels Yearbook 9, an annual report focusing on the latest trends in the key label regions; and the 8RFID Smart How to book 9, a guide toimplementing a particular label technology.A number of regional market research reports are also produced annually. In the packaging industry, Tarsus organises two annual events 3 The Packaging Summit in the USA and Packaging Summit Europe, held in Amsterdam. The North American event is dedicated to bringing packagers, brand owners, contract packaging providers and containers and materials companies together. Packaging Summit Europe is a two-day conference and exhibition attracting brand owners, packaging services and materials companies to discuss the future of the industry. Through its strategic partnership with Shanghai Modern International Exhibition Company, a subsidiary of the Shanghai World Expo Group, Tarsus markets four packaging and printing events in China: Print Pack & Paper Shanghai; PaperTech Shanghai; Corrugating & Converting Expo; and Shanghai International Advertising Technology & Equipment Exhibition. With forecasts predicting the value of the global packaging industry to reach US$597 billion by 2014, Tarsus continues to build its presence in this thriving sector. Labelexpo Americas 2006: Labels and Packaging 6% visitor increase 13,256 visitors 88 countries represented AnnualReport_2007_M.qxd 2/3/07 12:21 Page 5 Tarsus organises events dedicated to the off-price (or discount), clothing, home goods and gift industries in Las Vegas, New York and Miami. The clothing events are supported by 8Off Price Apparel 9, the premier trade magazine for the industry. The main Off-Price Specialist Shows in Las Vegas each attract over 12,000 visitors ranging from buyers in large international retail groups to mid-size chain retailers and single stores. Off-Price 9s smaller Market Shows take place in New York and Miami and provide a unique wholesale clothing market attracting textile manufacturers from all over the world to exhibit. The Off-Price business is growing in the US and worldwide, especially with the increase in demand for discount goods and the explosion of out of town malls 3 million of dollars of business is transacted onsite. Tarsus also owns pro-dimex, the first ever international direct import exhibition for promotional products, with a specific focus on Chinese and Eastern European suppliers. This event is held every year in Germany. 12,000 visitors to each show Discount Goods Off Price Specialist Shows February and August 2006: 77% of visitors are buyers 79% of buyers are retailers with annual sales in excess of $250,000 AnnualReport_2007_M.qxd 2/3/07 12:22 Page 6 Caroo Caroo is the company 9s online media division and is a unique business-to- business model that operates on a stand alone basis. The division operates in Sve geographies, including: the UK, USA, France, Germany and Australia. Caroo specialises in three sectors: gifts, events and online recruitment. In the gifts sector, Caroo has several websites in Europe and the US. The number one site is the well-established www.promotional-merchandise.org.uk which enables businesses to Snd promotional materials to support their marketing campaigns. In addition, www.giftwareindex.com is a leading wholesale resource designed for retail buyers searching for gifts or homeware. Caroo 9s joint venture, www.eventsreview.com, is a groundbreaking IPTV channel dedicated to live and experiential marketing for the events and marketing industries. In addition to this, two other websites, www.tsnn.com and www.tsnn.co.uk, provide the exhibition industry with the largest online directory to source news and suppliers. The online portal, www.venues.org.uk and its sister website, help event planners to locate venues across the UK and France. In the online recruitment sector, the global human resources portal, www.onrec.com and its magazine, 8Online Recruitment 9, offer a source of news and information for HR professionals. Onrec also coordinates conferences for online recruiters in London and Chicago. Caroo is a market leader in providing online directory products and lead generation services and in 2006 its websites attracted over 3 million unique visitors. 3 million unique visitors In 2006 : 58% readership growth in 2006 Promotional Merchandise UK: 55,000 leads generated in 2006 Venues UK: AnnualReport_2007_M.qxd 2/3/07 12:22 Page 7 Through its French division, Tarsus organises a series of niche exhibitions in the IT, educational, marketing and facilities management sectors. The company also has a portfolio of publishing products with its wide range of trade directories. The IT exhibitions span financial and strategic management (Progiforum 3 accounting software, Solutions Linux 3 information systems, Financium 3 financial solutions and CreditClients 3 risk management); the call centre and relationship management industry (SeCA); e-commerce (Business Online Expo); and information and communication technologies for education (Educatice). With its IP Convergence brand, Tarsus France runs three IT shows under one roof: Mobile Office for mobile business solutions; Convention VoIP for voice over Internet Protocol and M2M Forum, which specialises in wireless machine-to-machine communications. These events are supported by a series of directories, 8Mobilité 9 (mobile office solutions); 8e-commerce 9 and 8Security/Storage 9 (Internet and IT security), 8Finance 9, 8Transport et Logistique 9 (transport and logistics) and the 8Call Centre. 9 France Heavent2006 Visitor Breakdown : Purchasing managers, conventions department, seminars, companies event21.60% Communication, marketing and PR directors15.30% Events agencies19.10% Incentive and receptive agencies3.10% Seminar, convention and congress organiser4.10% Fairs and exhibition organiser3.60% Festivals, concerts, shows, sound and lighting organiser3.90% Sporting events and public events organiser2.10% Town hall, local/territorial communities, county councils, cultural/governmental collectivities3.80% Location and production managers4.60% Stage designers, architects1.50% TV and cinema producers3.10% Producers, directors, cinematographers and photographers1.10% Federations/ associations and syndicates0.70% Works comittees1.10% Press and publishing1.40% Suppliers8.20% Others1.70% AnnualReport_2007_M.qxd 2/3/07 12:22 Page 8 In the educational sector, the Paris-based Educatec show focuses on the technical aspects of teaching (e.g. training equipment) and provides a meeting place between businesses operating in the education and training market and teaching professionals. The RH Expo focuses on human resources and human capital and is supported by the directory 8Capital Humain 9. Tarsus operates a portfolio of marketing exhibitions in France. The exhibitions cater for the market research and media sector (Semo); the direct marketing industry (MD Expo); and event marketing (Heavent). The shows are complemented by a series of directories for professionals in market research ( 8Marketing Etudes 9); direct research ( 8Direct 9); management consultancy ( 8Consulting 9); billboard advertising ( 8ProVisual 9); luxury goods ( 8Marketing Luxe 9); the pharmaceutical industry ( 8Marketing Communication Santé 9); and the communication and sports marketing industry ( 8Sport & Sponsoring 9). In the facilities management sector, Tarsus runs SISEG/PROSEG, an annual exhibition which provides a focal point for facilities managers, company managers and finance managers to purchase new products and services for their businesses. Visitors include senior- level managers from both the private and public sector. Paris and the surrounding areas71.3% Other regions of France21.1% International5.8% Heavent 2006 Visitor Localities: AnnualReport_2007_M.qxd 2/3/07 12:22 Page 9 Tarsus organises medical sector events in the US anti-ageing market which is predicted to grow to a value of $72 billion by 2009. Three key annual events take place in the US in Orlando, Chicago and Las Vegas. These are attended by doctors and healthcare professionals and for many of them, they contribute towards their ongoing professional accreditation. In addition to the US-based events, a further 27 conferences take place across the world, many of them supported by Ministries of Health, governmental agencies and international sports federation organisations. Anti-Ageing Medicine is a fast growing clinical medical Seld, an extension of preventive health care and is based on the early detection, prevention and reversal of ageing- related diseases, as well as encompassing the wide array of plastic surgery, cosmetic and aesthetic procedures. Medical 6,000 physicians & scientists 14th Annual International Congress on Anti-Ageing Medicine 2006: 90 countries represented Orthopedics5% Family Practice20% General Medicine12% Endocrinology11% Dermatology11% Plastic Surgery11% Cardiology6% Internal Medicine8% Doctors of Osteopathy (D.O)6% OB-GYN5% Sports Medicine5% AnnualReport_2007_M.qxd 2/3/07 12:22 Page 10 Tarsus owns a travel trade exhibition, COTTM (The China Outbound Travel and Tourism Market). It is the only dedicated outbound travel event in China, the fastest growing travel market in the world, offering international tourism organisations the chance meet Chinese travel professionals with a view to creating partnerships and international alliances. The company also has an event which addresses the key employment and training issues in Europe in conjunction with the EU. Employment Week is a conference and exhibition attracting all the key employment stakeholders from across Europe and takes place each year in Brussels. Other events 25 EU member states represented COTTM 2006 Visitor Breakdown: Vice President6.48% Owner / Partner6.34% Managing Dir12.03% Sales Dir10.01% Marketing Dir4.97% Manager30.62% Marketing Mgr15.06% Other8.86% Employment Week 2006: AnnualReport_2007_M.qxd 2/3/07 12:22 Page 11 Tarsus Group plc Metro Building 1 Butterwick Hammersmith London W6 8DL United Kingdom Tel: +44(0)20 8846 2700 Fax: +44(0)20 8846 2801 www.tarsus-group.com AnnualReport_2007_M.qxd 2/3/07 12:22 Page 12 BUSINESS AND FINANCIAL REVIEW 5 TARSUS GROUP plc NATURE OF THE COMPANY Tarsus Group plc ( cTarsus d or cthe Group d) is an international media group with interests in exhibitions, conferences, publishing and online media. Headquartered in London, Tarsus is operational worldwide with offices in Paris, Milwaukee, Chicago, Düsseldorf and Shanghai. Its revenues are derived primarily in US dollars and euros. Tarsus 9s shares are listed on the main market of the London Stock Exchange and it has approximately 900 shareholders. Some 40% of the shares are held by 15 major institutions and over 22% of the shares are owned by the Chairman and other members of the Board. Tarsus has three geographic divisions and operates in an increasingly diversiLed range of sectors, including labels and packaging, merchandising, anti-ageing medicine, IT, education, training and marketing. The Group 9s proLts are driven by amixtureof bi-ennial, annual and bi-annual events. The Group employs over 160 staff worldwide and beneLts from expert teams with deep knowledge of each of the sectors in which it operates. Objectives and strategy The Group 9s principal objectives are:- "To own and manage, for its customers, the key brands in each of the sectors in which it operates. "To maximise and consistently grow adjusted earnings per share and dividends. In order to achieve these objectives Tarsus aims:- "To create an entrepreneurial culture which will deliver a stimulating and rewarding environment for its staff. "Tofurther broaden the base of the Group, through 8bolt-on d acquisitions and new launches. "To control the key media channels within the market of each relevant sector. "To replicate its exhibitions, conferences and online activities into a number of geographical areas. The Group 9s key performance indicators ( cKPIs d) by which it manages its performance fall into two categories:- Shareholder level 20062005 Adjusted earnings per share10.3p9.4p Like-for-like revenue growth15%19% Share price as at 31 December247.5p208p Full year dividends4.0p3.25p AnnualReport2006Pages1-9 9/3/07 16:10 Page 5 Adjusted EPS 1 Like-for-like revenue growth 2 Share price as at 31 DecemberDividends Product level The main Lnancial KPIscontinue to be based on sales, forward bookings, product proLtability and cashMow. The non-Lnancial KPIs vary depending on the media channel. These are as follows: Exhibitions:Space occupied and visitor attendance Conferences:Delegates and number of exhibitors Newmedia:Unique visitors per website Publishing:Pages per issue and readership INCOME STATEMENT The Group has achieved turnover of £26.3 million (2005: £23.2 million). The Group made a proLt before taxation of £7.0 million (2005: £5.5 million). The tax charge of £1.5 million (including the Group 9sshareof tax on the joint ventures 9 results) (2005: £1.2 million) represents 21% of proLt before tax (2005: 21%). The Group anticipates that, in the medium term, the tax charge will remain approximately at this level, as it continues to beneLt from existing tax assets and taxation structures. 1 Adjusted earnings per share is calculated using proLt after tax attributable to equity shareholders adjusted for share option c harges, amortisation charges, minority interests 9shareof losses and excludes proLt on disposal of intangible assets. 2 Like-for-like revenue growth is calculated as the percentage revenue growth over the previous year excluding the effects of acq uisitions, disposals and adjusting for biennial events. 2006 2005 2004 2003 2002 15% 19% 11% 2% 0.2% 0 5 10 15 20 2006 2005 2004 2003 2002 0 2 4 6 8 10 12 10.3p 9.4p 5.0p 4.0p 2.3p 2006 2005 2004 2003 2002 0 50 100 150 200 250 22.5p 86.5p 124p 208p 247.5p 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 2006 2005 2004 2003 2002 4p 3.25p 2.5p 2.2p 2.2p 6 TARSUS GROUP plc AnnualReport2006Pages1-9 9/3/07 16:10 Page 6 7 TARSUS GROUP plc EARNINGS PER SHARE Basic earnings per share improved to 9.9p from 9.0p in 2005. The Group achieved adjusted earnings per share of 10.3p compared with 9.4p in 2005. Adjusted earnings per share is based on proLt after tax attributable to equity shareholders, adjusted for share option charges, amortisation charges, minority interests 9 share of losses, and excluding proLt on disposal of intangible assets. On a fully diluted basis earnings per share improved to 9.5p compared with 8.6p in 2005. ACQUISITIONS & DISPOSALS The Group made four acquisitions during the year, the largest being Medical Conference International Inc., a leading global medical events organiser. This acquisition was completed in November 2006 at a total cost including contingent consideration of £23.1 million. The other signiLcant acquisition during the period was the French facilities management event, Proseg, which was completed in October 2006 at a total cost of £3.5 million. In addition, the Group completed two smaller acquisitions for our online-led division, Caroo. In January, Tarsus purchased DH Publishing Ltd. which is focused on the b2b global online recruitment industry principally through its portal www .onr ec.com .With effect from January 2006, the Group also purchased TSNN, the leading online resource for the exhibition industry in the US. Acquisitions have contributed £1.0 million to Group proLt before taxation during the year. InMarch, we sold the Progilog event in France for £0.7 million, generating a net proLt of £0.2 million. BALANCE SHEET As at 31 December 2006 the Group had net assets of £27.3 million (2005: £12.5 million), an increase of £14.8 million in the year.The principal changes were intangible assets (an increase of £29.3 million) and overdrafts, loans and borrowings (an increase of £7.9 million), both principally resulting from the acquisition of MCII. The carrying value of goodwill is assessed annually. When the recoverable value is determined to be less than the carrying value, an impairment provision is made, that provision being charged to the income statement in the period the impairment is Lrst recognised. IdentiLable intangible assets are separately recognised from goodwill and amortised over their estimated useful lives. It is the Group 9s policy to recognise the proLts of an event only on completion. Until completion such revenue and costs are held on the balance sheet. Where a loss is predicted for an event, the loss is recognised in the income statement in the period the loss is Lrst anticipated. Included in net current liabilities is deferred income of £9.4 million (2005: £6.6 million ). Prepaid event costs of £1.4 million (2005: £1.4 million) are included in debtors. The Group recognises liabilities in respect of contingent consideration payments for completed acquisitions based on its best estimates of amounts payable. These aredisclosed in the balance sheet within creditors, split between amounts due within one year £0.5 million (2005: £nil) and those amounts due after more than one year £2.9m (2005: £nil). DIVIDEND POLICY The directors take a prudent approach to dividend payments and will make payments only when commercially viable to do so. The directors are pleased to propose a Lnal dividend of 2.75p per share bringing the total for the year ended 31 December 2006 to 4.0p (2005: 3.25p). AnnualReport2006Pages1-9 9/3/07 16:10 Page 7 8 PRINCIPAL RISKS AND UNCERTAINTIES Theprincipal risks to the business are: "Economic factors affecting customer confidence. This risk emphasises the importance of having market leading products. The Group 9s efforts to broaden the sectoral and geographic coverage of its events should mitigate this risk, as does the fact that the Group 9s events are a combination of bi-ennial, annual and bi-annual events, reMecting the business cycles of the sectors served. "Loss of customers as a result of market consolidation, technology shifts, or general customer dissatisfaction, such that customers break away and develop their own shows or new competition is encouraged to launch against the Group. In this respect Tarsus aims to develop steering committees and more broadly based industry forums in which to discuss market shifts and customer care issues. It also aims to develop deep knowledge of the sectors within which it operates, developing close relationships with relevant trade associations, and maintaining state-of-the-art databases and internet capability. "Key management losses, including employees with irreplaceable skills. This can only be countered by the identiLcation and management of key staff, tailoring of appropriate contracts for them and regular review of remuneration packages. Good staff communication and a collegiate management style are other factors which diminish this risk. TREASURY AND FINANCIAL INSTRUMENTS The Group carries out regular reviews of its banking facilities to ensure that it has adequate working capital facilities in which to pursue its strategy. During the year the Group extended its facilities with its principal bankers in both the UK and the US. At 31 December 2006, the Group had net debt of £15.8 million (2005: £8.1 million) which was denominated in US dollars (2006: US$ 24.3 million; 2005: US$2.9 million) and euros (2006: 5.8 million; 2005: 10.0 million). As at 31 December 2006, the Group 9stotal facilities were£24.6 million (2005: £12.2 million). As part of its key internal controls, the Group monitors cash and loan balances on a weekly basis. During the year Tarsus generated £5.9 million of cash from operations (2005: £5.5 million). Adjusting for the effect of acquisitions and disposals made during the year, the Group generated £6.9 million (2005: £5.4 million) of cash from underlying operations, which represents a 110% conversion of underlying operating proLt to cash (2005: 101%). The major cash movements during the year were: "Acquisition of subsidiaries (net of cash acquired) £21.2 million "Dividends paid £1.7 million "Cash raised through a share placing £11.1million "Net cash from additional borrowings £11.1million The Group operates a centralised treasury function which is responsible for managing the liquidity, interest and foreign currency risks associated with the Group 9s activities. The Group does not generally use derivative Lnancial instruments for the management of these risks. In accordance with the Group 9s treasury policy, derivative instruments are not entered into for speculative purposes. The Group 9s principal Lnancial instruments are cash and short term-deposits, bank overdrafts and loans. The main purpose of these Lnancial instruments is to raise Lnance for the Group 9s operations. In addition, the Group has various other Lnancial assets and liabilities such as trade receivables and trade payables arising directly from its operations. Further details on Lnancial instruments are provided in note 26 to the Lnancial statements. LIQUIDITY RISK Our policy is to ensure continuity of funding for operational needs through cash deposits and debt facilities as appropriate. The key requirement for the business is to maintain Mexibility to allow it to take advantage of opportunities that could arise over the short term. The needs of the business are determined on a rolling cash Mow forecast basis, covering short, medium and long term requirements. TARSUS GROUP plc AnnualReport2006Pages1-9 9/3/07 16:10 Page 8 9 INTEREST RISK The Group has loans denominated in euros and US dollars and overdrafts denominated in Sterling, euros and US dollars. The interest rate risk is managed by a combination of taking out Lxed rate loans and maintaining the majority of overdrafts in currencies offering the lowest interest rates, currently the euro. The Group does not use any interest rate derivatives in order to manage interest rate risk. CREDIT RISK Credit risk is managed through a combination of rigorous credit control policies including the active chasing of overdue debt by dedicated credit controllers and the selective use of third party cash collection agencies. Regular reviews of the age proLle of the outstanding debt are carried out and action plans agreed between Lnance and commercial departments to ensure appropriate actions are taken to recover debt older than agreed credit terms. FOREIGN CURRENCY RISK The Group is exposed to movements in foreign exchange rates against sterling for trading transactions and the translation of net assets and the income statements of overseas operations. The principal exposure is to the US dollar and euro exchange rates which form the basis of pricing for customers. Tarsus has an element of natural hedge within its costs and revenues and its policy is not to enter into any external hedging arrangements for its foreign currency trading exposures. ENVIRONMENTAL AND EMPLOYEE MATTERS The Group acknowledges responsibility for care of the environment. The Group considers safety and environmental factors in all operating decisions and explores feasible opportunities to minimise any adverse impact from its operations. Further information on these matters can be found in the reporton corporate governance on page 24. The Group endeavours to keep employees informed on matters relevant to them through regular meetings and website based brieLngs. The Group operates a shareoption scheme which is open to all permanent employees and, for UK employees, an SAYE option scheme. GOING CONCERN After considering the current Lnancial projections for Tarsus, the directors have a reasonable expectation that the Group has adequate resources to continue its operations for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the accounts. NGJones Group Finance Director TARSUS GROUP plc AnnualReport2006Pages1-9 9/3/07 16:10 Page 9 DIRECTORS 9 REPORT 10 Tarsus is an international media group with interests in exhibitions, conferences, publishing and online media. PRINCIPAL ACTIVITIES, BUSINESS REVIEW AND FUTURE DEVELOPMENT The Group operates as an integrated media group primarily engaged in exhibitions, but with associated conferences, publishing and internet activities. The Group operates in the United States, Europe and the Emerging Markets. A review of the development of the business of the Group during the year, and its position at the end of it, is given in the Chairman 9s and Managing Director 9s Statement and in the Business and Financial Review on pages [ ] to [ ]. Information on the principal businesses acquired or disposed of from 1 January 2006 to date is disclosed in the notes to the Mnancial statemen ts. The Mnancial risk management objectives and policies of the Group, including its policies on hedging and exposures of the Group to credit, liquidity and cash Now risks are noted in the Business and Financial Review of the Group. RESULTS FOR THE YEAR AND DIVIDENDS The results for the year are set out in the consolidated income statement on page [ ]. Subject to the approval of shareholders at the Annual General Meeting, to be held on 18 April 2007, the directors propose to pay a Mnal dividend of 2.75p per share on 27 April 2007 to shareholders on the Register of Members on 9 March 2007. The Company proposes to continue to give shareholders the ability to elect to take this dividend in cash or as a scrip issue in new ordinary shares or as a combination of the two. The directors are empowered to offer this scrip alternative pursuant to an ordinary resolution of the Company passed at an Extraordinary General Meeting held on 29 April 2002. The crelevant value d of the ordinary shares of the Company to be issued by way of scrip alternative is determined by reference to Article 130(ii) of the Company 9s Articles of Association, and is the average value of the Company 9s ordinary shares for the Mve dealing days starting from and including 7 March 2007, that being the day when ordinary shares are Mrst quoted cex-dividend d. Full details of the scrip dividend alternative (including details of a mandate scheme for the convenience of shareholders who wish, if and to the extent that scrip dividend alternatives are offered in the future, to elect automatically to receive fully paid ordinary shares instead of cash in respect of future dividends to which they may be entitled) are being sent to shareholders, together with Forms of Election or Statements of Entitlement (as appropriate), in a separate circular. POST BALANCE SHEET EVENT On 9 February 2007, Tarsus entered into an agreement with Intex Shanghai Company Ltd. ( cIntex d) establishing a long term partnership agreement. Intex owns and manages the Shanghai International Exhibition Centre and venues in Ningbo (in partnership with Shanghai World Expo Group) and Zhengzhou (in a joint venture with the Hong Kong Convention and Exhibition Centre). Hugh Scrimgeour, a non-executive director of Tarsus, is also Vice-Chairman of Intex as the representative and controller of the Peninsular and Orient Steam Navigation Company 9s 30% shareholding in Intex. Three of Intex 9s exhibitions will be managed by the partnership for an initial period of twenty years. Two of these are medical exhibitions, Oral Care China and China Aid (disability equipment). The partnership will also be the local Chinese organiser of Tarsus's new Anti-Ageing events in China, of which it is planned to hold three in 2007. DIRECTORS AND THEIR INTERESTS The following Directors held office during the year: N D Buch J D Emslie B Becker R Pellow R T E Ware H C Scrimgeour The interests of the directors in the shares of the Company as set out in the register maintained by the Company pursuant to Section 325 of the Companies Act 1985 are set out in the remuneration report on pages [ ] to [ ] and there has been no change since 31 December 2006 in the interests of any of the directors in ordinary shares or options of the Company. No director had or has any material interest in any contractual agreement existing during or at the end of the year which is or may be signiMcant to the Company or the Group. TARSUS GROUP plc DETAILS OF THE NON-EXECUTIVE DIRECTORS Hugh Scrimgeour BA, FCA, 54, was appointed a director of the Company on 4 March 2004. Between 1993 and 1999 he was Chairman and Managing Director of Earls Court and Olympia, a major London events venue and exhibition organiser. He is Vice Chairman of two exhibition centres in China. He has also been Chief Financial Officer of Princess Cruises and Chief Executive Officer of Expocentric plc, a leading provider of online services to the events industry. Mr Scrimgeour is a Fellow of the Institute of Chartered Accountants and brings with him a wealth of industry experience relevant to the business as well as a valuable working knowledge of the Chinese exhibition market. Robert Ware BA, FCA, 52, was appointed a director of the Company in February 2000. A Fellow of the Institute of Chartered Accountants, he was a director of MEPC Limited ("MEPC") until June 2003. Initially Corporate Development Director, he was appointed Deputy Chief Executive in May 1999. In 2003 Mr Ware left MEPC to set up The Conygar Investment Company PLC, an AIM-listed company of which he is the Chief Executive. He is also a non-executive director of Raven Mount Plc, Gartmore Growth Opportunities Plc, Marwyn Value Investors I Limited and Marwyn value Investors II Limited. DETAILS OF THE EXECUTIVE DIRECTORS Neville David Buch BSc, 60, (Chairman), joined the Company when it launched in 1998. He was previously Executive Chairman of Blenheim Group PLC, a leading international exhibition, publishing and conference company which was acquired by United News & Media plc for £593 million in 1996. James Douglas Emslie BAcc (Hons) CA, 40, (Managing Director) joined the Company when it launched in 1998 as Finance Director, becoming Group Managing Director in 2000. Prior to joining Tarsus he held senior management positions at Blenheim Group PLC and after its takeover, United Business Media plc. He is also a board member of the Association of Exhibition Organisers and a member of the Institute of Chartered Accountants of Scotland. Neil Garth Jones, 40, (Group Finance Director) joined the Company in 2003 and was appointed as a director in January 2007. Prior to joining Tarsus Mr. Jones was European Finance Director for Advanstar Communications, the US media group. He was admitted to the Institute of Chartered Accountants in 1990 having qualiMed with Price Waterhouse. Bernard Becker, 56, joined the French division as Président Directeur Général of Tarsus Groupe MM SA in January 2003. Previously Mr Becker was a main board director of Blenheim Group PLC and Directeur Général of Groupe Blenheim SA for six years until 1994. He was subsequently Chairman of Reed Elsevier 9s European exhibition division for 5 years. Roger Pellow, 48, joined Tarsus in 2001, and heads up the Group 9s label division which runs nine Labelexpo events across the globe and publishes the market leading magazine, Labels and Labeling. Prior to this, Mr Pellow worked at CMPi (part of United Business Media plc) where he was Sales Director of the UK Division. The business address of each of the directors is Metro Building, 1 Butterwick, London W6 8DL. 11 TARSUS GROUP plc 1 Neville Buch, Executive Chairman 2 Douglas Emslie, Group Managing Director) 3 Neil Jones, Group Finance Director 4 Bernard Becker, Président Directeur Général Tarsus Groupe MM 5 Roger Pellow, Executive Director 6 Robert Ware, Non-executive Director 7 Hugh Scrimgeour, Non-executive Director 8. Peter Begg, Company Secretary 1 2 3 4 5 6 7 8 12 RE-ELECTION OF DIRECTORS The principles contained in the Combined Code are satisMed in relation to the requirement for each director to seek re- election at intervals of no more than three years. Article 86 of the Company 9s Articles of Association entitles the directors to appoint an additional director, but any director appointed in this way must retire from office at the Mrst Annual general meeting following his appointment. As a result Mr Jones will retire and will submit himself for election at the Annual General Meeting. Article 87 of the Company 9s Articles of Association requires that at every Annual General Meeting one third of the current directors must retire. Where the number of directors is not a number divisible by three, the number of directors to retire is to be the number which is nearest to and less than one third. On this basis two of the Company 9s remaining six directors must retire by rotation at the Annual General Meeting to be held on 18 April 2007. Article 88 states that the directors to retire by rotation will be those directors who have been directors longest since they were last elected. On this basis B Becker who was last re-elected on 25 April 2003 and R Pellow who was last re-elected on 15 April 2005 will retire by rotation. Both directors intend to seek re-election and the Board has conMrmed that they both continue to be effective and to demonstrate commitment to their roles. CREDITOR PAYMENT POLICY It is not the Company 9s policy to follow any standard or code on payment practice. However, the Company agrees payment terms with its suppliers on an individual basis and abides by those payment terms. Company creditor days at the end of the year amounted to 27 (2005: 23). The Group creditor days at the end of the year amounted to 70 (2005: 46). CHANGES IN SHARE CAPITAL The following changes have taken place to the share capital of the Company since 1 January 2006: Number of Ordinary Shares of 5p each Issued share capital as at 1 January 200653,267,352 Exercise of Share Options on 2 March 2006192,295 Exercise of Share Options on 7 April 200626,325 Issued on Scrip Alternative on 19 April 200656,559 Issued on Scrip Alternative on 6 November 200634,312 Issued on Vendor Placing (acquisition of Medical Conferences International Inc.) on 21 November 20065,304,107 Exercise of Share Options on 13 December 200625,000 Issued share capital as at 31 December 200658,905,950 Issued share capital as at 1 March 200758,905,950 TARSUS GROUP plc 13 SUBSTANTIAL SHAREHOLDINGS At1March 2007 the Company had been notiPed of the following discloseable interests in its issued ordinary share capital pursuant to sections 198 to 208 of the Companies Act 1985 or, as the case may be, the following notiPable holdings of voting rights in accordance with Chapter 5 of the Financial Services Authority 9s Disclosure and Transparency Rules: PercentageNumber of at1MarchOrdinary Shares 2007 NDBuch 1 20.3711,999,393 AXA Framlington Investment Management10.035,909,381 PO 9Donnell9.145,386,666 Standard Life Investments4.692,764,009 Luxrule SA4.532,665,667 CASmith3.572,105,856 Majedie Asset Management3.462,038,225 Aerion Fund Management3.121,839,280 Nopersons other than those listed above had interests of more than 3 per cent of the issued ordinary share capital of the Company. CONTRACTS OF SIGNIFICANCE A cquisition of DH P ublishing Ltd. ( cDHP d) By an agreement dated 11 January 2006 and made between Tarsus Exhibitions & Publishing Ltd. and David Hurst, the Company acquired the whole of the issued sharecapital of DH Publishing Ltd ( cDHP d) from David Hurst for a consideration of £350,000 plus further sums up to a maximum consideration of £1.3 million in total based on the performance of DHP in 2006, 2007 and 2008. DHP is focused on the b2b global online recruitment industry principally through its portal www .onr ec.com and the magazine Online Recruitment 3 as well as a range of associated conferences. Recruitment across a wide range of industries is increasingly being carried out online and DHP 9s portal brings industry service suppliers together with HR professionals, recruiters and job boards. A cquisition of 97.14% of P r oseg SARL By an agreement dated 2 October 2006 and made between members of the Constant family and Tarsus France SAS, the Company acquired 97.14% of Proseg SARL ( cProseg d) from the Constant family and associates for a total consideration of £3.5 million. Proseg SARL owns the Proseg exhibition, an annual exhibition which takes place in Paris for the facilities management industry. The next edition will take place in June 2007 and will be merged with the Group 9s competitive SISEG exhibition which was launched in June 2006. Proseg will be the second largest exhibition in the Group 9s French portfolio. A cquisition of M edical Confer ences I nter national I nc. ( cMCII d) Byacontract dated 15 November 2006 and made between the Company and Dr Robert Goldman and Dr Ronald Klatz, the Company acquired 80% of the issued share capital of Medical Conferences International Inc. ( cMCII d), a leading organiser of medical sector exhibitions and conferences in the US anti-ageing market. The Company paid an initial sum of US$36 million to the vendors on completion and will pay contingent consideration up to a maximum of US$10 million subject to certain performance criteria relating to the level of growth achieved by MCII over a Pve year period. MCII organises three key annual events in Orlando (April), Chicago (August) and Las Vegas (December) respectively. MCII has been expanding its brand internationally with 27 small events worldwide scheduled for 2007. 1 Ofthe ordinaryshares held byNDBuch 277,322 ordinary shares are owned by Owlcastle Ltd., a company in which N D Buch has a 50 pe r cent benePcial interest, and 34,954 areowned by his children (although being over the age of 18, they are not required to be aggrega ted for disclosure purposes). TARSUS GROUP plc AnnualReport2006Pages13-34 9/3/07 16:02 Page 13 14 TARSUS GROUP plc ANNUAL GENERAL MEETING Thenext Annual General Meeting of the Company will be held on 18 April 2007. The notice of the meeting is set out on pages 74 to 76. An explanation of the items of special business is set out below. GENERAL EXPLANATION OF SPECIAL BUSINESS AT THE ANNUAL GENERAL MEETING Non-executive directors 9 fees The Company 9s Articles of Association provide that the total fees (which would not include salaries) payable to the directors in any Pnancial year must not exceed £50,000 unless a higher aggregate sum is approved by an ordinary resolution of the shareholders at a general meeting. This was increased to £100,000 by a resolution passed at the 2004 Annual General Meeting. In practice, fees are only paid to non-executive directors. Resolution 7 set out in the Notice of Meeting, which will be proposed as an ordinary resolution, will Px the aggregate fees payable to the directors at £150,000. The fees payable to each individual non-executive director are determined by the Board. Authority to allot The Companies Act 1985 prevents directors from allotting unissued shares without the authority of shareholders in general meeting. In certain circumstances this could be unduly restrictive. The directors 9 existing authority to allot shares, which was granted at the Annual General Meeting held on 19th April 2006, will expire at the end of this year 9s Annual General Meeting. Resolution 8 set out in the Notice of Meeting, which will be proposed as an ordinary resolution, will authorise the directors (pursuant to Section 80 of the Companies Act 1985) to allot ordinary shares in the capital of the Company up to a maximum nominal amount of £981,756, being approximately 33.3 per cent of the nominal value of the ordinary shares currently in issue (the Company does not currently hold any shares in the Treasury). The authority (unless previously varied, revoked or renewed) will expire on the earlier of 15 months from the date of passing of the resolution or the conclusion of the Annual General Meeting held to approve the Report and Accounts for the year ending 31 December 2007. The directors will exercise such authority to allot only when satisPed that it is in the interests of the Company to do so. They haveno present intention, however, of exercising the authority, except if necessary in connection with the issue of shares under the Company 9s share option scheme and to satisfy valid applications for shares under the scrip dividend scheme. However, the directors believe it to be in the best interests of the Company that they should continue to have this authority so that such allotments can take place to Pnance appropriate business opportunities that may arise. Disapplication of pre-emption rights The provisions of Section 89 of the Companies Act 1985 (which, to the extent not disapplied, confer on shareholders rights of pre-emption in respect of the allotment of 8equity securities 9 which are or are to be paid up in cash other than by way of allotment to employees under an employees 9 share scheme) apply to the authorised but unissued ordinary shares of the Company to the extent that they arenot disapplied pursuant to Section 95 of the Companies Act 1985. The existing disapplication of these statutory pre-emption rights, which was granted at the Annual General Meeting held on 19 April 2006, will expireat the end of this year 9s Annual General Meeting. Resolution 9 as set out in the Notice of Meeting will be proposed as a special resolution to permit directors to allot shares without the application of these statutorypre-emption rights, Prst, in relation to rights issues and, secondly, in relation to the issue of ordinary shares in the capital of the Company for cash up to a maximum aggregate nominal amount of £147,265 (representing approximately 5 per cent of the nominal value of the ordinary shares of the Company currently in issue). The authority (unless previously varied, revoked or renewed) will expire on the earlier of 15 months from the date of passing of the resolution or the conclusion of the Annual General Meeting held to approve the Report and Accounts for the year ending 31 December 2007. AnnualReport2006Pages13-34 9/3/07 16:02 Page 14 15 TARSUS GROUP plc The authority sought and limits set by this Resolution will also apply to a sale by the Company of any shares it holds as treasury shares. The Treasury Share Regulations, which came into effect in December 2003, allow shares purchased by the Company out of distributable proPts to be held as treasury shares, which may then be cancelled, sold for cash or used to meet the Company 9s obligations under its employee share-based incentive schemes. Any subsequent transfers of treasury shares by the Company to satisfy the requirements of employee share-based incentive schemes will be made within the 10% anti-dilution limit for such share issues. Repurchase of ordinary shares At the Annual General Meeting of the Company held on 19 April 2006, the Company was given authority to make market purchases of up to 5,326,735 of its own ordinary shares. The Company did not make any purchases pursuant to this authority prior to 31 December 2006. Accordingly, as at 31 December 2006 such authority remained outstanding in relation to 5,326,735 shares. Resolution 10 which will be proposed as a special resolution, will authorise the Company to make market purchases of up to approximately 10 per cent of the Company 9s issued ordinary share capital at prices not less than the nominal value of an ordinary share and not exceeding 105 per cent of the average of the middle market quotations for the Pve business days before each purchase (exclusive of expenses). The authority will expire on the earlier of 15 months from the date of passing of the resolution or the conclusion of the Annual General Meeting held to approve the Report and Accounts for the year ending 31 December 2007. Your directors have no plans to make such purchases, buying back the Company 9s ordinary shares is one of the options for effective management of the Company 9s capital which they keep under review. It is envisaged that purchases would only be made after considering the effect upon earnings per share and the benePts for shareholders generally. The Company may hold in treasury any of its own shares that it purchases pursuant to the Treasury Share Regulations and the authority conferred by this Resolution. This would give the Company the ability to re-issue treasury shares quickly and cost effectively and would provide the Company with greater Qexibility in the management of its capital base. Therewere4,952,569 employee options and 800,000 commercial options to third parties, outstanding in respect of shares in the Company as at 1 March 2007 which, if exercised on that date would have represented 9.8 per cent of the entire issued sharecapital of the Company.They would represent 10.8 per cent of the entireissued sharecapital of the Company if the Company purchased all the shares it is able to purchase pursuant to the authority sought byResolution 10. Offer of Dividends in the form of scrip shares An ordinary resolution was passed on 29 April 2002 to authorize the directors to offer ordinary shareholders the right to receive new ordinary shares, credited as fully paid up, instead of some or all of the cash dividends declared or paid by the Company.The validity of that resolution expires at the 2007 Annual General Meeting and a new resolution (Resolution 11)will be proposed as an ordinary resolution authorising the directors to offer the right in relation to the Pnal dividend in respect of the year ended on 31 December and any dividends which may be declared or paid by the Company in the period up to and including the Annual General Meeting held in the Pfth year after 18 April 2007. Approval of Remuneration Report The Companies Act 1985 requires listed companies to put resolution to shareholders at each Annual General Meeting to approve the directors 9 remuneration report, which forms part of the annual report. The vote is advisory in nature. Resolution 12, which will be proposed as an ordinary resolution, will seek the approval of the Company 9s shareholders to the remuneration report of the directors set out in pages 17 to 23 of this document. VOTING ARRANGEMENTS Under the Company 9s Articles of Association voting is generally conducted at the Annual General Meeting on a show of hands except in dePned circumstances. However the practice of the Company has been to declare the number of proxy votes cast for or against speciPcresolutions, and to indicate where votes have been withheld. The same practice will be adopted at the Annual General Meeting in April 2007. AnnualReport2006Pages13-34 9/3/07 16:02 Page 15 16 TARSUS GROUP plc DISCLOSURE OF INFORMATION TO AUDITORS The directors who held office at the date of approval of this Directors 9 Report conPrm that, as far as they are each aware, there is no relevant information of which the Company 9s auditors are unaware; and each director has taken all the steps that he ought to have taken as a director to make himself aware of any relevant audit information and to establish that the Company 9s auditors are aware of that information. AUDITORS The Company 9s auditors, KPMG Audit Plc, resigned during the year and were replaced by PKF (UK) LLP, who have indicated their willingness to continue in office, and a resolution that they be reappointed will be proposed at the Annual General Meeting. Byorder of the Board PFCBegg Company Secretary 1March 2007 AnnualReport2006Pages13-34 9/3/07 16:02 Page 16 REMUNERATION REPORT FOR THE YEAR ENDED 31 DECEMBER 2006 17 COMPOSITION OF THE REMUNERATION COMMITTEE The Remuneration Committee (the cCommittee d) is responsible for determining the salaries and other remuneration of the executive directors and senior management of the Group. It is also responsible for the Company 9s Executive Share Option Scheme. There have been no special arrangements or signiPcant changes since the previous remuneration report. Throughout the year ended 31 December 2006 the Committee has comprised not less than two directors. R T E Ware served as Chairman throughout the year. H C Scrimgeour has served as a member since his appointment as a director. The Company regards all members of the Committee as independent under the Combined Code. The non-executive directors were able, if they wished, to have access to independent advice during the course of the year, and this remains the case. The Committee is responsible for appointing consultants where advice is required in respect of executive director remuneration. However no remuneration consultants or other advisers in this Peld were appointed during the year. NDBuch attends meetings of the Remuneration Committee by invitation except when his own remuneration is under discussion. From time to time meetings of the Committee are also attended by invitation by the Managing Director, J D Emslie, except when his own remuneration is under discussion. Both N D Buch and J D Emslie, when attending, have assisted the Committee in its deliberations. Nodirector is involved in deciding his own remuneration. The Committee does not determine the fees payable to the non-executive directors, which are considered and approved, subject to the limits set out in the Articles of Association, by the entire Board. The fees paid to the non-executive directors during the year were: HCScrimgeour£30,000 RTEWare£33,000 All of the non-executiveappointments run for 12 month periods and the term of the appointment may be renewed by mutual consent for further periods of one year subject to re-election on retirement at any Annual General Meeting, at which they may be required, pursuant to the Company 9s Articles of Association, to retire by rotation. REMUNERATION POLICY The Group operates a formal and transparent procedure for developing policy on executive remuneration and for Pxing the remuneration packages of individual directors, including the Chairman. In establishing its remuneration policy, the Committee conPrms that full consideration has been given to the provisions set out in the Combined Code. The policy of the Committee in respect of the remuneration of the executive directors for the current Pnancial year and subsequent Pnancial years (to the extent that the Committee is able to determine this) is to: "Recruit and retain directors and senior executives of the highest calibre; and "Align the interests of the executivedirectors with those of shareholders. The Committee consults with the Chairman about their proposals relating to the remuneration of executive directors. Remuneration levels aredesigned so that no more is paid than is necessary. The Committee endeavours to remain sensitive to the wider scene, judging whereto position the Group relativeto other companies (though using such comparisons with caution) and considering pay and conditions throughout the Group, especially when determining annual salary increases. The Committee is also required to recommend and monitor the level and structure of remuneration for the Prst layer of management belowboardlevel. As regards the design of performance-related remuneration the Committee gives attention to the provisions in Schedule A to the Combined Code ( cProvisions on the design of performance-related remuneration d). It is an important part of the Group 9s pay policy, both at senior level and below, that a signiPcant proportion of the overall remuneration package should be performance-related, comprising bonuses and meaningful share option packages. TARSUS GROUP plc AnnualReport2006Pages13-34 9/3/07 16:02 Page 17 18 TARSUS GROUP plc Inrespect of share options and long-term incentive plans, the maximum award of share options (other than super options) which may be made under the Company 9s Executive Share Option Scheme is equivalent to four times annual salary. As a pre-condition of exercise, appropriate performance criteria are established. Historically the

less