Earnings Call: H1 2023

Nov 8, 2022

Good morning, and welcome to the Bloomsbury Publishing PLC Interim Financial Results for the 6 Months Ended 31st August, 2022 Investor Presentation. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review your questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following Nigel Newton, CEO. Good morning to you, sir. Good morning, everyone, and a very warm welcome and thank you for coming to hear The BloomStreet interim results presentation, we had a very exciting 1st 6 months to our financial year. They were the best figures in the 36 year history of Williamsburg in that 1st 6 months. And Penny Scott, they feel and I look forward very much to telling you what went on in that period. So as you can see, both revenue and profits were up 22% 23% respectively. Our digital strategy to grow the BloomStreet Digital Resource 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 Lumen Street'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 28. We make a comment in the right hand part of the Slide as 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. And That's the really good news for us. And 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 crisisrecession. So if we take a look at the growth, you'll see that The profit in the second bullet point was €15,900,000 which is a very strong figure for us In the first half. And the good news is that the strength of the performance was balanced equally between the consumer And for the non consumer divisions. And for any of you on this call who are new to GreenTree, 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, Hesthette and so on, or they're entirely academic publishers, Oxford University, Press, Cambridge, Taylor and Francis and so on. So we combine those and We create at BloomStreet a portfolio of portfolios marching to the different economic Drummers of those 2 quite different types of publishing, and that's been an abiding strength for us. And in particular, our industry 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%. So 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 has mentioned, up 22% secondly, our pretax profit, up 23% And certainly, our EPS, what we're actually delivering on the bottom line, up 19%. So really a very healthy start to the year. Looking at each division. We're very pleased, as Nigel has mentioned, again, to have Showing such strong growth in both divisions. So looking first at Consumer on the left hand side, 21% growth there, 19% of that was organic, really pointing to the strengths of our content and how we're doing it. And you can see that we've pretty much maintained that very Strong consumer margin at 12%. And then looking at non consumer, 24% growth there. And you can see we've really delivered a significant improvement on that margin, increasing from 12% to 15%. So 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. So Children's had a very strong first half, up 30%. And there are 2 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 Tori may also be new to the Sarah J. Maas phenomenon, and we'll tell you a bit more about her and her astonishing Body of work and demand later. Academic and professional, and this contains the Bloomissary 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. So a great example of that of the combination of organic growth and how we make our acquisitions really work. Within adult, growth of 7%. We had much stronger 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. And then within special interest, we have had a softer First half here, and we'll talk you through later on in the presentation what we're doing here. So coming 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. And here, you can see this really astonishing Slide showing that we've grown we've managed to grow revenue in every single channel. This is really absolutely extraordinary and Real testament to the strengths of our content but also how effectively we are at delivering it. Then looking at print. You can see print demand remains strong, up 15%. And again, for those of you newer to our story, that's off the back of 2 very, very strong print years. So again, really encouraging there. And BDR up 69%. And that's really fantastic growth, as I think you will appreciate. And that's a combination of organic growth, up 41% and the impact of our acquisitions, in particular here, ABC Cleo. So we brought in this slide. Key to our long term success has been and we think will continue to be our diversified strategy. And we thought it was helpful to reiterate or share for the first time with some of our audience today what that actually means. And when we say diversifying, we mean by channel, by territory and by market. So by channel, as I've just said, we're platform agnostic. Our point is to produce incredible content. For 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 And our most recent acquisition, ABC Cleo, 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. So she's someone we picked up. She was self publishing in the U. S. We picked her up 14 books later. She's now global worldwide best selling author, And she sells as well in India as she does in the U. S, in Australia and the U. K, and really astonishing demand. And then thirdly, to markets. Nigel has 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. But that's extended our reach into the U. S. High school market. So with Bloom's Free Digital Resources, we are worldwide in the higher education market. Buying ABC Clio has given us ready It's given us direct access into the school's market where we've already established that we're able to sell our Bloom's free digital resources products. So for example, Drama Online works as well in a high school as it does in a higher education college. So that's a really nice Sample, and we'll talk a bit more about that later. So we also wanted to give you an update on our strong balance sheet. And here, I wanted to highlight 2 points. First of all, our net cash position of €41,500,000 remains strong. That's key to giving us the self generated firepower we have for future acquisitions and for buying more great content. And remember, year on year, that's following the acquisition in December of ABC Clio for just under £17,000,000 So we remain highly cash generative. The other point was to just highlight where we are in working capital. It's Key benchmark, Rene, 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, it has Produced a big increase year on year, with 2% coming from acquisitions. But 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. So 3 key things to highlight here. First of all, you can see that £15,900,000 of profit coming in. That's absolutely key to being able to generate generating such positive cash flows as our trading success. We spent €7,600,000 on dividends, And that's included the 24% increase in our final dividend last year, which I hope those of you who are shareholders We're grateful and benefited from. Then we had a negative €5,000,000 movement on working capital. And overall, mainly because we were paying out higher advances and also because we paid a higher staff bonus year on year, and that reflected last year's very positive success And it's one of the many measures we use to maintain a very, very positive relationship with our staff. So we also share some of the key big 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 are also sharing the great trading success that we've been able to deliver for them. So we work very hard to generate the cash. This slide sets out how we use it. So our priorities remain: number 1, investing for growth. That's across Bloom's free 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. And thirdly, there are progressive dividends supported by strong cash cover, Again, a real priority for us. So moving on to a slide, which one of our shareholders yesterday described as sensational. We share this to remind us of all of the consistency of our dividend growth. And now back to Nigel. So in the academic and professional part of the Non consumer division, we had a fantastic 6 months with 38% Growth and driven in part by the great success of the Industry Digital Resources And 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. So drilling down at this in what we call BDR, I think one of the key points to make is how good the margins are there. So 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 It's 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 markets that we aim at. And of course, fundamental to all BER projects are partnerships Where we carry other people's content in addition to our own increasing the glue Excellent. So 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 2, 3 4 Years later, even 5 into an actual purchase. So it's a very important Statistic about our health of the pipeline. And You can see in the bottom right, Valson is some market leading verticals. These are the great Products that are driving this division. Okay. So our growth target is 50% organic growth in the BBR division. We've made acquisitions for it. We're hoping For further acquisitions, we've got a long way to go, a lot of Greenfields ahead of us because we've only sold so far to 2,400 Out of the 5,000 academic research libraries worldwide. So 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 £1,300,000 in the period and You made a loss compared to the profits of a year ago, albeit the small one. There are some of The title is concerned. So 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 tunnels in Society working from home and not working from home and everything else. So meanwhile, over in the Consumer division, adult trade, which we're particularly famous for, and you see the Revenue is up ahead of 7% and profit of 200,000 Dan, slightly as we prepare our list for the future. We have a Booker Prize shortlisted And a number of Sunday Times bestsellers And New York Times bestsellers as well. So the other big part of the Consumer division is children's trade, historically very successful area for Bloom Street And our 2 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. And the latest title was House of Sky and Breath came out in February, just before the start of this Financial half year was absolutely sensational and hit number 1 on VELAZA all over the world. So looking at our long term growth strategy, The three core elements of this, and I'm very pleased to report that we've made great progress across all these three areas. So just highlighting here On nonconsumer, our goal is to grow nonconsumer revenues, 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 35% and Cerrogy Mass up 45%. We're very pleased with the performance here. And international expansion. I 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. So looking at our ESG goals, these are a core part of our long term strategy. And here, we've highlighted They're key efforts around our employee experience and around sustainability. With employees, we absolutely continue to Prioritize the staff. This is absolutely core and central to our values and what we do. And we've done a number of things, Number of new things in addition to what we've already done over the last 6 months, and that's included a £1,000 salary increase to all of our staff. So obviously, disproportionately benefiting the more genius staff. We thought that was a really key part of addressing some of the challenges coming up this winter. And sustainability. Here, we have a combination of the practical, reducing our plastic shrink-wrap, reducing The plastic finishes, our books become recyclable, but also improving our reporting and disclosure because we recognize that's The key part of your investors and the wider community being able to really measure what we're doing and how we're delivering it. So 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 Fripp from the Whittingstall and Heston Blumenthal and Tom Carriage. We also have new talents joining the list, including Edward Ennenfeld, the Editor of British Chabaud, who's written a very powerful memoir, A Visible Man, that will show you We'll show you a couple of videos in this, and one of them is about him. And then we've also welcomed the great historian, Orlando Fajes, To our list with his timely book, The Story of Russia. And then Alan Moore, a legendary author, new book Illuminations is selling well for us in the U. S. It's featured on the front cover of The New York Times Magazine and in the U. K. As well. And some of our brilliant children's authors, Bridget Kemmerer with her latest book and Catherine Doyle. And finally, Pamela Shamsi, who won the Orange Prize with her previous novel With Queen Street and Fire. And this is her great new celebration of female friendship, best of friends set Between Pakistan and London. And so in summary, As you can see, it's been a good period. We're confident in the resilience of the Strategy that we've adopted to the balance sheet is strong. Both divisions are firing on all cylinders. The BBR division will stand out in the years ahead, and we're confident in meeting the Board's expectations for the year ending in February. So that's it. And thank you very much. And what we're going to do now is just show These videos and then Penny and I will take the curated questions that Will be put to us. So may we have the videos now, please? Oh, the pictures. I haven't seen the pictures yet. A visible man by me, Edward Ennafort. We live in community, too. We hear the gunshots crack as their bodies would slump. If I had been edging around the question of my sexual orientation. The guy grabbed me and we started making out. Frank's whole face lit up. Edward Enninful, the solace. My God, I love your work. Oh, honey. Now came furs, lace, Edward, I'd love you to come in and meet Anna. I just figured, okay, the white, it's over. It's for Trussman Girls and not for me. 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 is just too big because you won't recognize. Okay. So the first video, if you didn't discern it, was about the book top phenomenon, TikTok, which has driven so many sales in our industry in the last year and a half. And the second one was, of course, about Edward Ayman, Felt's memoir, Visible Men. So we'll hand over to you all to hand over To handle the questions. Great. Well, Nigel, we've got plenty of questions coming through. So if we can start with the most recent question that's come through, A great presentation. Could we talk a little bit about what impacts a global recession would have on Publishing? Yes. The evidence of history is that books have not suffered greatly In recessions, because they're 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, but I feel relatively confident just based on what's happened so far because this Cost of living crisis really bit by August. So 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? And I think we can absolutely say we've Had to work incredibly hard over the last 2.5 years to deliver the performances that you've seen over the last 2.5 sets of results sorry, 5 sets of results. And that's because we've worked incredibly hard both on mitigating some of the supply chain challenges by by changing higher and printing earlier to make sure our suppliers are in shops and that or is with the offline the online retailers. So it's there. We're very agile about where we print. So 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. And as it doesn't matter whether you're moving books or motorbikes Well, Christmas decorations, it's a challenge if there aren't enough trucks. But we're very agile about where we print. And that's basically why we've been able to continue selling. So continue meeting the demand and producing the goods that people want to buy. Now obviously, that is on the print side. And 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. And the question was do we see things being back to normal now on the consumer side? And so 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. And so we're seeing a much more balanced portfolio across the group. In the 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, if anything slightly potentially even slightly softer 2nd half because we don't have a new Sarah J mass book in February as we did last year. So 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. So our acquisitions are a key part of the Bloom Street strategy, and we continue to Target them. We have made close to 30 acquisitions now, and they're A vital part of the industry business mix. Of course, it's entirely dependent on what's available or what people are Willing to sell at any one time, but we do have a full time M and A function here and there, kept constantly Busy evaluating opportunities, both big and small. And we had a very successful acquisition Year 12 months ago with ABC, Theo and Head of Zeus and Art Films. So The bar is high at the moment. And Nigel, they were mainly in the academic space, weren't they, feeding our Bloomsbury digital resources? Yes. The AEC CLIO was completely fundamental to things through digital resources As was Art Films. Head of Zeus was a consumer publisher and different in 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. And I think we what we've said very clearly is that we intend to use that for Investing in new content and further acquisitions. And so we don't think our current cash is excessive. We think that, 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. So 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, then that's when we've increased it by more than the market expectation then. And I think we may be coming on to our last question here, which is about BDR, Where we shared the next 5 year guidance of 50% growth at a 30% margin. And the question is, is that sorry, I'm just reading this. So How is that compared to what we've delivered? So I think, first of all, the first half has been phenomenally strong. We've been really pleased with that. But I don't think we should take Sorry, the first half of our as our read across, especially with how strong ABC has been performing for the next 5 years. Equally, just to clarify, when we're talking about 30% margin, that's on the organic growth. We fully maintain intend to maintain our underlying margin. And in fact, with ABC CLIO, we've been delivering even higher than our current RO margin. So we're being we're still being extremely ambitious here. I think that's all the questions. And there's, I think, one final question here, which is, Nigel, what are you reading at the moment? Are there any books You recommend to our investors? Okay. Well, a confession, I'm reading an oral Bloom Street book, But I hope it will be coming through the book. It's called The American Mission by Matthew Palmer, who is the Deputy Chief of Mission at the U. S. Embassy In London, and it's a thriller he wrote in 2014 when he was based as a diplomat in Africa. And it's an incredibly exciting thriller about the Congo and diamonds and skullduggery At the top. And I currently have this book being read by the head of Head of Zeus, our Shaw or Fiction Publishing colleagues, and I'm hopeful they'll be as smooth as I am on this book and take it along for the UK and Commonwealth rights. So you can order that book, but it would have to come from Nigel or Penny, I think you've actually addressed all those questions from investors. And of course, the company will review all questions submitted today, and we'll publish those responses on the Investor Meet company platform. But just before redirecting, investors provide you with their feedback, which I know 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 UK Publishers Association and I recently returned from 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 King Street is, but most people are doing very well. And it's really great to have this old tech products that we produce that's Being around since Gusemburg having such primacy In the lives of consumers in 2022. So I think our good fortune is on my mind. 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, And 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, but so far we've navigated them. And so my parting words would be please look at the greenstreet.com. Please order some of our books for your friends and family as gifts this Christmas and creates a virtuous circle between Investments 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.