Earnings Call: H1 2023

Nov 8, 2022

Good morning, and welcome to the Bloomsbury Publishing PLC interim financial results for the six months ended 31st August 2022 investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time by the Q&A tab situated on the right-hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Nigel Newton, CEO. Good morning to you, sir. Good morning, everyone, and a very warm welcome, and thank you for coming to hear the Bloomsbury interim results presentation. We had a very exciting first six months to our financial year. They were the best figures in the 36-year history of Bloomsbury in that first six months. Penny Scott-Bayfield and I look forward very much to telling you what went on in that period. As you can see, both revenue and profits were up 22% and 23% respectively. Our digital strategy to grow the Bloomsbury Digital Resources division into something with real impact is paying off, and the revenues were up by 69% in the period. I'm pleased to say that Bloomsbury's unbroken record of dividend increase continued up by 5% in this period, and we are confident of meeting market expectations for the year as a whole, which as you know, ends on February the 28th. We make a comment in the right-hand part of the slide about what's going on here sociologically, which is that reading is continuing to enjoy some of the boom which it experienced during the lockdowns. That's the really good news for us. It's really to do with the fact that people love reading books and books are cheap. They're much less expensive than other items of household expenditure that people may cut in this cost of living crisis/recession. If we take a look at the growth, you'll see that the profit in the second bullet point was GBP 15.9 million, which is a very strong figure for us in the first half. The good news is that the strength of the performance was balanced equally between the consumer and the non-consumer divisions. For any of you on this call who are new to Bloomsbury, it's worth emphasizing that that is our unique strength, because our competitors are, in the main, either entirely consumer publishers, Penguin, Random House, HarperCollins, Hachette, and so on, or they're entirely academic publishers, Oxford University Press, Cambridge, Taylor & Francis, and so on. We combine those, and we create at Bloomsbury a portfolio of portfolios marching to the different economic drummers of those two quite different types of publishing, and that's been an abiding strength for us. In particular, our Bloomsbury Digital Resource strategy, which we'll tell you more about in a minute. But I'm also pleased to say that as an acquisition-driven company, which we are, that we had organic growth as well of 12%. Good morning, everyone. I'd like to take you quickly through our financial highlights here before we go into more detail later on in the presentation. Three key points from this slide. First of all, revenue, as Nigel's mentioned, up 22%. Secondly, our pre-tax profit up 23%, and thirdly, our EPS, what we're actually delivering on the bottom line, up 19%. Really a very healthy start to the year. Looking at each division, we're very pleased, as Nigel has mentioned, again, to have shown such strong growth in both divisions. Looking first at consumer on the left-hand side, 21% growth there. 19% of that was organic, really pointing to the strength of our content and how we're doing it. You can see that we've pretty much maintained that very strong consumer margin at 12%. Looking at non-consumer, 24% growth there, you can see we've really delivered a significant improvement on that margin, increasing from 12% to 15%. That's really the impact of a lot of our different strategic plans coming through. Looking at our revenue in a little bit more detail. Children's had a very strong first half, up 30%, and there are two key drivers for this. Harry Potter, our very well-known children's brand, but also Sarah J. Maas, and those of you who are new to our story may also be new to the Sarah J. Maas phenomenon. We'll tell you a bit more about her and her astonishing body of work and demand later. Academic and professional, this contains the Bloomsbury Digital Resources content, up 38%, and that's really an astonishing impact of both organic growth, but also our acquisition of ABC-CLIO in December last year. A great example there of the combination of organic growth and how we make our acquisitions really work. Within adults, growth of 7%. We had strong comps for this in the first half last year, but we were still able to deliver growth year on year, which is very encouraging. Within special interests, we have had a softer first half here, and we'll talk you through later on in the presentation what we're doing here. Looking at our revenue by channel, which we think is a very important way of looking at it, we are platform agnostic. Our aim is to get our content into whatever format works best for the customer or consumer. Here you can see this really astonishing slide showing that we've managed to grow revenue in every single channel. This is really absolutely extraordinary, and it's a real testament to the strengths of our content, but also how effective we are at delivering it. Looking at print, you can see print demand remains strong, up 15%. Again, for those of you newer to our story, that's off the back of two very, very strong print years. Again, really encouraging there. BDR up 69%, and that's really fantastic growth as I think you will all appreciate, and that's a combination of organic growth up 41% and the impact of our acquisitions, and particularly here, ABC-CLIO. We've brought in this slide. Key to our long-term success has been, and we think will continue to be, our diversified strategy. We thought it was helpful to reiterate or share for the first time with some of our audience today what that actually means. When we say diversifying, we mean by channel, by territory, and by market. By channel, as I've just said, we're platform agnostic. Our point is to produce incredible content, incredible unique content, and get it out into whatever format works best. By territory, one of our key things has been from an entirely U.K. business over 30 years ago to now a business where we're over 70% outside of the U.K. Our most recent acquisition, ABC-CLIO, gives us even more access to that North America market. We mentioned there the global reach of key authors, and Sarah J. Maas is a great example of that. She's someone we picked up. She was self-publishing in the U.S. We picked her up. 14 books later, she's now a global, worldwide best-selling author. She sells as well in India as she does in the U.S., in Australia, and the U.K., and really astonishing demand. Thirdly, to markets. Nigel's mentioned we're a unique combination of academic and consumer publishing, and this gives us extraordinary reach and synergies. Another example of this is, again, looking at our ABC-CLIO acquisition. You can tell we're very proud of this. That's extended our reach into the U.S. high school market. With Bloomsbury Digital Resources, we are worldwide in the higher education market. Buying ABC-CLIO has given us direct access into the schools market, where we've already established that we're able to sell our Bloomsbury Digital Resources products. For example, Drama Online works as well in a high school as it does in a higher education college. That's a really nice example, and we'll talk a bit more about that later. We also wanted to give you an update on our strong balance sheet. Here I wanted to highlight two points. First of all, our net cash position at GBP 41.5 million remains strong. That's key to giving us the self-generated firepower we have for future acquisitions and for buying more great content. Remember, year-on-year, that's following the acquisition in December of ABC-CLIO for just under GBP 17 million. We remain highly cash generative. The other point was to just highlight where we are on working capital. It's a key benchmark as any of our efficiency, how we're using our funds here. We've increased our inventory year-on-year, and that's actually been mainly because of the impact of FX, translating dollar stock balances into sterling obviously has produced a big increase year-on-year, with 2% coming from acquisitions. Our underlying stock levels remain very similar and completely under control. We also want to share with you where we were on our first half cash flow. Three key things to highlight here. First of all, you can see that GBP 15.9 million of profit coming in. That's absolutely key to generating such positive cash flows as our trading success. We spent GBP 7.6 million on dividends, and that included the 24% increase in our final dividend last year, which I hope those of you who are shareholders were grateful and benefited from. We had a negative GBP 5 million movement on working capital, overall, mainly because we were paying out higher advances, also because we paid a higher staff bonus year-over-year, that reflected last year's very positive success, and is one of the many measures we use to maintain a very positive relationship with our staff. We also share some of the key bigger working capital movements on the right-hand side, how much we pay in advances. This is advances to authors and royalty payments, which is obviously our authors sharing the great trading success that we've been able to deliver for them. We work very hard to generate the cash. This slide sets out how we use it. Our priorities remain, number one, investing for growth. That's across Bloomsbury Digital Resources. It's across new content. Our business thrives on great new content as well as our incredible existing content and company acquisitions, which we've talked to. It's incredibly important for us to maintain our strong balance sheet. That's been a core part of our resilience, and I think it's even more important in these slightly challenging times. Thirdly, that our progressive dividend supported by strong cash cover, again, a real priority for us. Moving on to a slide which one of our shareholders yesterday described as sensational. We share this to remind us of all the consistency of our dividend growth. Now back to Nigel. In the academic and professional part of the non-consumer division, we had a fantastic six months with 38% growth, driven in part by the great success of Bloomsbury Digital Resources. The profit was up a stunning 85% on last year. You can see some of the products that made it happen for us. One of them is in the bottom left there, The Asian American Experience, celebrating the benefits to American culture and a very successful product in U.S. high schools. If we go on to the next slide, please. Drilling down this in what we call BDR, I think one of the key points to make is how good the margins are there. Our top platform has a 90% margin. You can imagine the attraction of that. ABC-CLIO, the Santa Barbara-based digital resource publisher we purchased 18 months ago, is aimed heavily at U.S. high schools. That's a new market for us. It's a very considerable market. It's much bigger than the college market that we aim at. Of course, fundamental to all BDR projects are partnerships, where we carry other people's content in addition to our own, increasing the glue of them. Next slide. There you can see the organic growth in BDR of 41%. The important figure of the number of institutions who are trialing our products. Those trials are what convert sometimes two, three, and four years later, even five, into an actual purchase. It's a very important statistic about our health of the pipeline. You can see in the bottom right, whilst in some market-leading verticals, these are the great products that are driving this division. Okay. Our growth target is 50% organic growth in the BDR division. We've made acquisitions for it. We're hoping for further acquisitions. We've got a long way to go, a lot of green fields ahead of us because we've only sold so far to 2,400 out of the 5,000 academic research libraries worldwide. That means there's plenty of upside to come as we roll out to a wider customer base. Special Interest is the other part of the non-consumer division. It's had a tough period. Revenue was down by GBP 1.3 million in the period, and we made a loss compared to the profit of a year ago, albeit a small one. There are some of the titles concerned. We're focusing very hard on this area now to turn that back around. It's historically been a perfectly successful area for us, and it may have suffered from the impacts of the tumult in society and working from home and not working from home and everything else. Meanwhile, over in the consumer division, adult trade, which we're particularly famous for, and you see that revenue is up a handsome 7% and profit of GBP 200,000, down slightly as we prepare our list for the future. We had a Booker Prize shortlisted title and a number of The Sunday Times bestsellers and The New York Times bestsellers as well. The other big part of the consumer division is children's trade, historically, a very successful area for Bloomsbury, and our two mainstays of Harry Potter and Sarah J. Maas are both up and up considerably, 30% overall, 35% for Harry Potter, 45% for Sarah J. Maas. The latest title was House of Flame and Shadow, came out in February, just before the start of this financial half year, and was absolutely sensational, and it hit number 1 on the bestseller list all over the world. Looking at our long-term growth strategy, there are three core elements of this, and I'm very pleased to report that we've made great progress across all these three areas. Just highlighting here on non-consumer, our goal is to grow non-consumer revenue, so we have a nice balanced portfolio. And by delivering 24% growth and a 3% increase in the margin, we feel we've absolutely achieved that. Within consumer, it's this combination of growing new authors and building and creating new audiences for our existing authors. And as Nigel has mentioned, with Harry Potter up 35% and Sarah J. Maas up 45%, we're very pleased with the performance here. International expansion, I've mentioned already how our goal has always been to reduce reliance on the U.K. market. We're now 73% outside the U.K. market and 70% of our BDR sales are international. Looking at our ESG goals, these are a core part of our long-term strategy, and here we have highlighted the key efforts around our employee experience and around sustainability. With employees, we have absolutely continued to prioritize our staff. This is absolutely core and central to our values and what we do. We have done a number of things, a number of new things in addition to what we have already done over the last six months, and that included a GBP 1,000 salary increase to all of our staff. Obviously disproportionately benefiting the more junior staff, but we thought that was a really key part of addressing some of the challenges coming up this winter. Sustainability. Here we have a combination of the practical, reducing our plastic shrink wrap, reducing the plastic finishes, so our books become recyclable. Also improving our reporting and disclosure because we recognize that is a key part of you, our investors and the wider community, being able to really measure what we are doing and how we are delivering it. On this slide, you see the books that are currently flying in most cases, out of our warehouse as we approach the Christmas gifting season of 2022. We have strong contributions from our mainstay authors like J.K. Rowling with the new illustrated edition out in the top left, and from our very stable base of chefs, including Hugh Fearnley-Whittingstall and Heston Blumenthal and Tom Kerridge. We also have new talents joining the list, including Edward Enninful, the editor of British Vogue, who has written a very powerful memoir, A Visible Man. We will show you a couple of videos in a minute, and one of them is about him. We have also welcomed the great historian Orlando Figes to our list with his timely book, The Story of Russia. Alan Moore, a legendary author who has just joined us and whose new book, Illuminations, is selling well for us in the U.S., where it was featured on the front cover of The New York Times Magazine and in the U.K. as well. Some of our brilliant children's authors, Brigid Kemmerer with her latest book and Catherine Doyle. Kamila Shamsie, who won the Orange Prize with her previous novel with Bloomsbury, Home Fire. This is her great new celebration of female friendship Best of Friends set between Pakistan and London. In summary, as you can see, it has been a good period. We are confident in the resilience of the strategy that we have adopted. The balance sheet is strong. Both divisions are firing on all cylinders. The BDR division will stand out in the years ahead, and we're confident in meeting the board's expectations for the year ending in February. That's it. Thank you very much. What we're going to do now is just show you these videos, and then Penny and I will take the curated questions that will be put to us. May we have the videos now, please? Can you read 500 words for me? You can have a go here. Go on. Oh, the pictures. I haven't seen the pictures yet. A Visible Man" by me, Edward Enninful. We lived in community too. We'd hear the gunshots crack as their bodies would slump. Oh, is it firing squad day? If I had been edging around the question of my sexual orientation. The guy grabbed me and we started making out. Franca's whole face lit up. "Edward Enninful, the stylist. My God, I love your work. Oh, honey. Out came furs, lace, leather, fashion. Edward, I'd love you to come in and meet Anna. I just figured, okay, they're white, it's over. It's for trust fund girls and not for me. Racism? Xoxo. I was confronted by a security guard, a white woman who looked me up and down. Loading bay. Deliveries go through the loading bay. Maybe your ego's just too big because you won't recognize. Big spender. Major. Okay. The first video, if you didn't discern it, was about the BookTok phenomenon, TikTok, which has driven so many sales in our industry in the last year and a half. The second one was, of course, about Edward Enninful's memoir, "Visible Man." We'll hand over to you all to handle the questions. Great. Well, Nigel, we've got plenty of questions coming through. If we can start with the most recent question that's come through. A great presentation. Thank you. Could we talk a little bit about what impact a global recession would have on publishing? Yes. The evidence of history is that books have not suffered greatly in recessions because they're a cheap and affordable item, which hold their own, even as other bigger items of household expenditure are slashed. Of course, history is not a perfect predictor of what will happen in the future. I feel relatively confident just based on what's happened so far, because this cost of living crisis really bit by August. We have a couple of months trading under our belt where it continues to go well. Thank you, Nigel. Another question we've had is, have we experienced any negative impact from supply chain pressures? I think we can absolutely say we've had to work incredibly hard over the last two and a half years to deliver the performances that you've seen over the last two and a half sets of results. Sorry, five sets of results. That's because we've worked incredibly hard both on mitigating some of the supply chain challenges by printing higher and printing earlier to make sure our supply is in shops or is with the online retailers, it's there. We're very agile about where we print. Where we've had restrictions in certain territories, we've moved printing either to mitigate some of the transport disruption, which continues in some areas but has been a challenge for us. It doesn't matter whether you're moving books or motorbikes or Christmas decorations, it's a challenge if there aren't enough trucks. We're very agile about where we print. That's basically why we've been able to continue selling, continue meeting the demand and producing the goods that people want to buy. Obviously, that is on the print side. A key part of our strategy is diversifying into digital, where obviously those points just do not affect that digital supply. Another question we've had was that in the first half last year, you're absolutely right, we talked about consumer sales coming through much earlier. The question was, do we see things being back to normal now on the consumer side? Would we expect a higher H2 on the consumer side? I think I speak for both of us when I say absolutely, there is no new normal. We're seeing a much more balanced portfolio across the group. We used to see sort of 20/80 in terms of our consumer profit. We're absolutely not expecting that this year. We see, in fact, kind of things potentially even slightly softer second half because we don't have a new Sarah J. Maas book in February as we did last year. One of the other questions we've had is, we've spoken a bit about our desire for future acquisitions, and could we speak more about that? Nigel, do you want to talk to that? Yes. Our acquisitions are a key part of the Bloomsbury strategy, and we continue to target them. We have made close to 30 acquisitions now, and they're a vital part of the Bloomsbury business mix. Of course, it's entirely dependent on what's available or what people are willing to sell at any one time. We do have a full-time M&A function here, and they're kept constantly busy evaluating opportunities both big and small. We had a very successful acquisition a year or 12 months ago with ABC-CLIO and Head of Zeus, and Artfilms. The bar is high at the moment. Nigel, they were mainly in the academic space, weren't they? Feeding our Bloomsbury Digital Resources. Yeah. The ABC-CLIO was completely fundamental to Bloomsbury Digital Resources, as was Artfilms. Head of Zeus was a consumer publisher and different, and feeding our strength in that area as well. Thank you. I think feeding into that or coming onto that question nicely is a point about our feeling about our ongoing cash level. I think what we've said very clearly is that we intend to use that for investing in new content, and further acquisitions. So we don't think our current cash is excessive. We think that provides incredibly powerful firepower, with potential for real opportunity in this market at the moment. Another question we've had is about our dividend. We've increased our interim dividend by 5%. I think our track record on that has been, we tend to keep it at 5% for the interim. If we are in the lucky position of outperforming for the full year, that's when we've increased it by more than the market expectation then. I think we may be coming onto our last question here, which is about BDR, where we shared the next five-year guidance of 50% growth at a 30% margin. The question is, how is that compared to what we've delivered? I think first of all, the first half has been phenomenally strong, and we've been really pleased with that. I don't think we should take necessarily the first half as our read across, especially with how strong ABC has been performing for the next five years. Equally, just to clarify, when we're talking about 30% margin, that's on the organic growth. We fully intend to maintain our underlying margin. In fact, with ABC-CLIO, we've been delivering even higher than our own margin. We're still being extremely ambitious here. I think that's all the questions. There's, I think, one final question here, which is, Nigel, what are you reading at the moment? Are there any books you'd recommend to our investors? Okay. Well, a confession, I'm reading a non-Bloomsbury book. I hope it will become a Bloomsbury book. It's called "The American Mission" by Matthew Palmer, who is the deputy chief of mission at the U.S. Embassy in London. It's a thriller he wrote in 2014, when he was based as a diplomat in Africa. It's an incredibly exciting thriller about the Congo and diamonds and skulduggery at the top. I currently have this book being read by the head of Head of Zeus, our genre fiction publishing colleagues. I'm hopeful they'll be as keen as I am on this book and take it on for the U.K. and Commonwealth rights. You can order that book, but it would have to come from America, or you'd get it as an e-book. Great. Thanks, Nigel. Nigel, Penny, I think you've actually addressed all those questions from investors. Of course, the company will review all questions submitted today and will publish those responses on the Investor Meet Company platform. Just before redirecting investors to provide you with their feedback, which is particularly important to the company, Nigel, could I just ask you for a few closing comments? Just to say it's a very exciting period for the company and really for the industry as a whole. I'm currently the president of the U.K. Publishers Association. I recently returned from the Frankfurt Book Fair, where it was very good to see that publishing colleagues from all over the world have been experiencing the same boom in reading that we are here in the U.K. Not everyone is doing as well as Bloomsbury is, but most people are doing very well. It's really great to have this old tech product that we produce that's been around since Gutenberg, having such primacy in the lives of consumers in 2022. I think our good fortune is on my mind, but I think the fact that we publish in the English language is brilliant. This really is now the language of the world, a great instance of Britain and America's soft power, it certainly makes it easy for us selling books without the needing to go through translation as we do so successfully today. Yes, we suffer from all the same macroeconomic difficulties as all of the other companies that you invest in. So far, we've navigated them. My parting words would be, please look at bloomsbury.com. Please order some of our books for your friends and family as gifts this Christmas, create the virtuous circle between investment and enjoyment. Thank you very much. Nigel, Penny, thank you very much for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of Bloomsbury Publishing PLC, we'd like to thank you for attending today's presentation and good morning to you all.