NEC heads LG

August 13, 2008

NEC heads LG

Further to my earlier post (http://birminghamcentral.blogspot.com/2008/06/nec-casino.html) on the NEC's casino plans and redevelopment of the NEC Arena the FT reports National Exhibition Centre plans £118m revamp.

The National Exhibition Centre, the UK’s biggest exhibitions space, is planning a £118m reinvention in partnership with Malaysian-owned leisure group Genting Stanley and LG, the South Korean electronics group.

The managers of the Solihull venue, familiar to generations of marketing professionals who have attended trade shows there, have two objectives: to create facilities where visitors can unwind after manning stands or tramping round exhibitions, and to update the tatty NEC Arena concert venue to exploit an upswing in the live music business.

The NEC, which was established in 1976, is part of the hard landscape of the UK business environment. It stages about 850 events a year, ranging from exhibitions of huge industrial machinery to the Spring Fair giftware show, in which decorative fridge magnets are a typical item.

More than 4m people flow in and out of its halls annually, which are at the centre of a cat’s cradle of transport links, including the M6, the national rail network and Birmingham International Airport.

The NEC Group is owned by Birmingham council, the UK’s biggest local authority. But most of its key relationships are with companies, particularly exhibition organisers such as Emap, Haymarket and Reed.

At the same time, it is locked in an endless battle with rival exhibition venues to win – and protect – new business.

In the UK, the 200,000 sq m venue fights it out with smaller competitors such as Earls Court Olympia in London and the Manchester Evening News Arena. In Europe, the challenge comes from vast, public sector-backed exhibition centres in France and Germany.

“We need to put our foot on the accelerator and pull away from the opposition,” says Kathryn James, managing director of the NEC. “We want to say we are a 21st-century venue and that we are different.”

Ms James is part of a new regime at the NEC Group, under chief executive Paul Thandi, which is mandated to shake up an asset that – at the margins – is showing its age both in terms of its physical infrastructure and its quality of service.

A related challenge is to keep exhibitors and delegates on-site and spending money after exhibitions wind up for the day at about 5pm. Ambitious plans unveiled earlier this decade came to nothing. But now the NEC Group is having a second shot.

It has a better chance of succeeding this time thanks to the partnership with Genting Stanley. The government, overcoming a long-running moral funk over gambling, has given the right to award “large” casino licences to eight local authorities, including Solihull.

These “large” casinos will be small by international standards, with a maximum of 150 slot machines with jackpots of up to £4,000. However, a casino beside the lake at the NEC would nevertheless provide the catalyst for a £90m leisure development, including hotels, restaurants, bars and spas.

Steven Myers, Genting Stanley’s managing director for development, says: “We think this is one of the best sites in the UK, with the airport right beside it, and the road and rail next door.”

In turn, the company was attractive to the NEC because of its experience in developments with a broader appeal than gaming alone. Parent company Genting Berhad created the Genting Highlands Resort in Malaysia and is building the £2.2bn Resorts World at Sentosa, off the coast of Singapore.

The NEC Group and Genting Stanley must prove that their proposal is competitive through a bidding process. However, it is exceptionally unlikely that any scheme that does not involve the NEC would gain Solihull councillors’ approval. The award of a licence is scheduled for next October, which suggests that building would begin in 2010 and conclude in 2012.

The NEC Arena, a stopping place for stadium rockers on tours of the UK, is meanwhile due to receive a £28m facelift with support from LG. The Korean group is making an undisclosed contribution towards meeting the interest costs on the upgrade in return for the rebranding of the venue as the LG Arena.

An extra 2,000 seats will be installed, taking capacity to 13,000. Corporate boxes and bars will be created. The tin-roofed building (described as a “shed” by one critic) through which gig-goers get in will be replaced with something grander.

Tours once promoted recordings, but illegal downloading has reversed the relationship. The result is growing power for the most popular artists. It is no coincidence that the NEC Arena overhaul includes a refurbishment of unglamorous backstage facilities. If Madonna and George Michael do not like their dressing rooms, they may not schedule a concert in Birmingham the next time that they are on tour.

Live music has been thriving. But the willingness of concert-goers to continue paying steep prices to see big-name acts is weakening as the economy slows and consumer confidence erodes. Ms James says there are signs of price resistance for concert tickets being sold at about £50. The exhibitions business is proving more robust, although the NEC is “seeing some impact in visitor numbers and spending by exhibitors”.

The NEC contributes £2bn a year to the West Midlands economy, much of it in the form of turnover for small businesses. The group’s own sales line was £127.3m in the year to March 31 2008, £13m less than the year before. Profits before tax fell £9m to about £3m.

That is less dire than it at first sounds, because big trade shows recur in two-, three- and four-year cycles. The result is a bunching of events that trigger predictable rises and falls in profits in particular years.
Copyright The Financial Times Limited 2008.