Bloomsbury Publishing (LSE:BMY) — Investor Presentation

0:00 Morning, and welcome to the BLOOMSBURY PUBLISHING PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received 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 would like to submit the following poll. And I would now like to hand you over

0:30 to CEO, Nigel Newton. Good morning to you. And good morning to you, and thank you all very much for coming to hear the Bloomsbury story of the great year that ended on the 02/28/2023. So on the first side, you see an artist's impression of our building at 50 Bedford Square. And then on the second side, I'd like to start talking to you about these record results, which were the highest profit and sales in the thirty seven odd year history of the company, and we're very proud of these. Now we think they're due in part to what the analysts, Al Reade at Investec, calls the flywheel effect of BLOOMSBURY, where the investments that we've made are throwing off more cash that in turn enables us to buy more and bigger and better books and more investments in digital resources and more investments in company acquisitions as well.

1:49 So sales are up 15%, which is well ahead of the industry at 4%, and profit is up even more 16%. It's the first time we've crossed the £30,000,000 profit threshold. Our secret weapon, if you like, BMY Digital Resources, is up an impressive 41%, and the dividend is up by 10%, which is fantastic. So in the left hand block, you see our kind of overall message, which is that reading has remained an

2:34 activity of increased popularity even as people have returned from incarceration in their homes to their normal daily lives. So we're very lucky about that. Now on the second slide, we take a look at growth at BLOOMSBURY, and you will see some of the key indexes of this. One of the ones that strikes me the most is in the top right of those six tablets that if you look back to just before the beginning of the pandemic, our sales increased 62% and our profits 98%.

3:20 So so it shows what a a whirlwind of a time that we've had. And we'll talk to you about these other points as we go through the slides. And I'm now very pleased to hand over to BLOOMSBURY's Finance Director, Penny Scott Bayfield. Good morning, everyone, and great to have you all on the call this morning. So three key points to pull out from this slide. First of all, as Nigel has mentioned, 15% increase in revenue second, 16% increase in our profit and thirdly, that that's led to an 18% increase in the EPS.

4:06 So moving on to what's behind this, both divisions did well. And you can see on the right hand side of this slide, a 19% increase in our nonconsumer division and a two percentage point increase in the pretax margin from 11% to 13%. And the combination of those two has led to that 43 increase in profit. And then on the left hand side, you can see the 12% increase in our consumer revenue, and we've maintained that margin at around about 11% to 12%. So looking at revenue in a little bit more detail. As Nigel mentioned, we're ahead of the market. So The UK consumer market was up 2% and The UK academic market up 3%.

4:55 You can see how well that compares to our 12% growth in consumer and 19% in non consumer. Of course, that's global. Within academic and professional, 28 growth there. And as Nigel mentioned, that's been powered by the growth of our BDR revenue, which we'll talk more about later. And then also calling out the 17% growth in children's. As many of you know, we've had a very strong few years in consumer. We continue to build on that and to achieve 17% on top of last year. It was really testament to the quality of what we're doing. So moving on to revenue by channel and giving you an update here. You can see here we've called out 41% increase in BDR. That's in the middle of your slides.

5:44 We've seen a 29% growth in audio. Some of you may remember the pre pandemic, we were expecting this to really start taking off and because of consumer behavior as we're all, as Nigel says, incarcerated. This was a bit slower, but now that's really starting to motor.

6:03 Ebooks, very strong growth again here, and that's both from the consumer and particularly the academic side. And then overall, you can see their print 9% growth. That's a very, very resilient, medium and channel for us. A reminder here that we're absolutely platform agnostic. Our our point is to produce and generate very high quality content, and then get that out into whatever channel best suits the consumer. So moving on to the balance sheet here and giving you an update on our strong financial position. There are two points I wanted to call out on this slide. First of all, the net cash, 51,500,000. We remain highly cash generative, and that's after paying the increased dividend from last year.

6:51 And second of all, the increasing working capital, and this is in basically down to increasing levels of inventory. So part of the inventory increases we've said there is FX. Equally, you know, we've prioritized throughout the supply chain challenges of the last three years. We prioritized making sure supply is available for sale. And we've had this strong demand that's been our key priority. And an impact to that has been to increase stock levels. As we move forward, we're expecting some of the supply chain challenges to ease slightly, and that will help us keep a lid on that.

7:38 So moving on to the key movements in our cash flow. First of all, you can see 31,000,000 generated by our profit. As we said, we remain highly cash generative. Our dividend payments were just under GBP 9,000,000, and then the net impact to working capital during the year was negative GBP 2,500,000. And on the right hand side, we call out our investment in advances. This is our future content pipeline increased by over GBP 2,000,000 during the year. And one of the few payments I'm delighted to make apart from the dividend is our royalty payments, rewarding our authors for the incredibly strong sales we've seen. And you can see there, that's increased from 20 just under 27,000,000 to just over 33,000,000.

8:26 So if I can hand back to Nigel to take you through the dividend. So we're very proud of this dividend upward step. I think for twenty seven years now, we've increased the dividend every year. It booms really, and it's a great reason to own our shares. And as you can see, the the record is set in the most recent figure. So the the cover, you will note, is in excess of two times. So if I can go to the next slide, please.

9:11 So there is more detail about the dividend policy. And we are investing for organic growth, and we are also investing for acquisitions. As you can see, we've made 19 strategic acquisitions since 2008, and most of them have been supporting the academic and special interest division, where we've leveraged many of them into further content for the BLOOMSBURY digital resource platforms. Now on the next slide, you will see our strategy is diversified in three different cuts, really.

10:08 The first is channels where we do, as you know, digital. We do print books. We do ebooks, and we do audiobooks. And that's the first, if you like, of our three portfolios. Secondly, we're cut by territory, and we're very excited to have 73% of our revenue coming from overseas, which is just as well in view of the self inflicted wounds we're suffering from here in The UK economy at the moment. So our biggest gift is the English language, which is, of course, spoken increasingly all over the world and always expanding the market for our books.

11:06 And then thirdly, the markets themselves. So nobody else of our size in our industry is combining general publishing with academic publishing. I sometimes wonder why that is because they are such obvious things to go together. And most of the individual actions and therefore overheads required to publish a book are identical between the two areas with the exception of commissioning the books and marketing the books, production, selling, legal, HR, contracts, distribution, warehousing, all of these things are all the same.

11:55 So they've enabled us. If you take a look at all three of those factors together, channels, territory, and markets, we have a portfolio of portfolios, much as I'm sure you as investors do. And this has provided tremendous resilience to the company. When one thing is down, another thing might well be up. And we're we're marching to the different drummers so that the high streets or the main street, on the one hand, consumer pending patterns with our general books and with our academic books, we're working to the long term budgets held by institutions, universities, colleges worldwide, which is a completely different pace, and it gives Bloomsbury great strength.

12:58 So now looking at the excellent A and P performance. So first of all, to call out again the revenue growth, 28% growth to just under GBP 76,000,000, and that's increased by 84% over the last five years. So just repeating that, 84% growth in the last five years. So the investment and the time and effort we put into and the reason we went into this really paying off. And also, which is absolutely key is that we've more than doubled the margin here. So we've increased that over the same five year period from 716%. And this is why, as some of you will remember, that we went into this area in the first place is because of these very these much higher margins.

13:44 And then just calling out again at the bottom, the BDR, the strength of the BDR strategy and how that's contributed to this overall result. So in the year that we've just had revenue of just over 26,000,000, 41% growth.

14:03 So looking in a little bit more detail about about BDR, just a reminder or an introduction about the BDR strategy. So that's building high margin, high quality, repeatable digital revenues and accelerating our growth with acquisitions. So we use a combination of our fantastic organic content and acquired content. The success of this has led to both the revenue growth that we've seen and also the impact on the A and P margin. So the revenue growth over the last five years has been from GBP 6,500,000 to GBP 26,000,000. We, in fact, beat our first five year target by 24%. And at the time, that looked like an incredibly bullish target. So that's an indication just how successful this has been.

14:51 And as I mentioned just just now, that's driven a doubling, over double in the a and p overall margin. So looking now at some of the key KPIs within BDR. First of all, splitting that revenue growth between the organic and acquired. So the organic growth, 18%. So we're still achieving high double digit growth from the organic as well as the impact of the acquisitions. And last year, we made two significant acquisitions, sorry, that's year to February 22. We made two significant strategic acquisitions in this area, and they obviously enormously contributed to that. And we'll talk a bit more about those.

15:37 Second of all, more customers. So we had a 20% increase in the number of our academic customers to 2,700. But also with the ABC CLIO acquisition, which was in December 21, we acquired access to The US schools market, and we currently have four and a half thousand customers with that US schools market.

16:00 We'll talk a bit more about the opportunity there in a minute. And key here is that these are repeatable revenues. So we've maintained our academic customer retention rate above 90%. So these are high quality, high margin repeat revenues.

16:20 So coming on to the the opportunity within this area. First of all, a new BDR target to achieve further 40% organic revenue growth over the five years to February 28 to reach GBP 37,000,000 turnover. There would be further upside from future acquisitions in this area. So this is what we're aiming to do just with what we've got at the moment. Looking at the addressable market, so this is what we define as the this market who could buy our products at teaching our subject areas in the English language. So we think there's about 5,000 in the academic institution, that's higher education market.

17:07 So our penetration is about half there. And looking at The US schools market, which

17:12 as I've just said, comes from the ABC acquisition, there's 27,000 US schools teaching our subjects. We currently have less than 5,000 as customers. So with both those metrics, you can really see the scale of the opportunity that we still have.

17:31 So moving on to current today's current hot topic in AI. Nigel, back to you. Well, AI is having as big an impact on our industry as it is others. And given the well publicized plunge in the share price of The US study guide publisher Chegg, we were keen to communicate with our shareholders and future shareholders our assessments of the potential impact of AI on the industry. And, I mean, the first thing to say is we don't we don't know because it's happening at such a rapid pace.

18:24 You probably never heard of CHAT GPT before February. But we believe that there's a great deal of upside in it for, if you like, the digitization of many of the the work processes that we perform as publishers. It will also create headaches for us and

18:51 the the attribution of books to the human being that we're paying really write this book and so on. But we've we've dealt with other technological challenges and opportunities in the past and expect to take this one in our stride. I do I do think personally that it is a big threat to mankind in a in a broader sense. But but in a business sense for this industry, it will create, I think, more opportunities than it will problems. Now why why is that? What's different about the industry to Chegg or Pearson?

19:37 First of all, we publish leading brands, proprietorial works.

19:45 If you want Tom Carriage's new cookbook, you don't wish to just print out some recipes cold from the Internet by ChatsGPT. Similarly, if you're a fan of the novels of Khaled Hosseini or Camilla Shamsi, you you are hooked on that author, and you don't want to read something similar written by a robot. So our market position as a publisher to only publish works of excellence and originality has is paying off well in this particular conundrum in a way we couldn't possibly have imagined when that became the company's mission at the time of the founding of the company in 1986.

20:44 But it does mean that we have big branded products by famous authors, and we aren't the generic providers of travel information and guidebooks to Italy or whatever it may be, where I'm sure ChatGPT

21:03 could make a good fist of writing this and and will compete with generic publishers. But but thankfully, on the whole, not for us. So I hope you are reassured as well as frightened. Next slide, please. So looking at special interest, which is the other side of our nonconsumer division, as as many of you know, this is our

21:32 publishing aimed at very specific communities. So we have we brought in a very targeted publishing strategy here with leading content brands where we focus on specific areas, including wildlife, nautical sport, games, military history. This includes Wisdom, very well known brand reads and and various lifestyle projects, including the award winning happy new project featured there. And I'm delighted to say that targeted publishing strategy, including very tight cost control, is working well, and we've brought this division back into profit this year. So moving on to our adult trade division. So as you can see, we

22:21 had a a good list in the year, and the book novel Trespasses by Louise Kennedy has become a major bestseller and won many prizes. The the the growth wasn't as big in consumer trade nor the profits as in previous years. But it it is, to some extent, hit driven, and that's one of the reasons we started the academic division twelve years ago was to iron out the highs and lows of consumer publishing, which can deliver, as we've seen with Harry Potter and so many other books, far greater profit than anything when you have a guess, but we you don't always have them in neatly contained and arbitrary twelve month periods.

23:16 But the the consumer division overall is a huge engine room of industry. And there you can see some of the books that have done really well. And on the next slide, children's. Children's did have a fantastic year, 17% sales growth. And what was behind that were our old friends Harry Potter, Sarah j Maas, and a range of other outstanding illustrated children's books and novels and fiction written for children.

24:01 We give more detail there on the outstanding performance of Harry Potter and Sarah J Maas, who was up by a staggering 51%. And that growth is coming both from her new titles, but her backlist titles, and there are now 15 books from her. And we have a further seven now under contract, which is fantastic news. Long term growth strategy goals where we we set out a little table there showing you what our goals were and how we have performed against them.

24:53 And I think some of these are particularly pleasing. The the the VDR targets being one of them and another one being the increase, as I've indicated earlier, of our international revenues. So if we go on to the next slide, I'd like to talk about our ESG goals. We've been very lucky in that area and have won major prizes in our industry and indeed in all industries in these areas. We won the the master investor award for company of the year last June, and we've been winning industry prices in in DE and I and sustainability.

25:58 And we also make the points in the right hand block of this slide that publishing books or at least the books we publish is itself a social good. So there's a real virtuous circle between how we do it and what we do. And finally, we give a little snapshot there of the great books that are coming out later this year or have come out since the year began on the March 1. That latter category would include Peter Francophan's stunning book, The Earth Transformed, to follow his huge success with the Silk Road.

26:50 It's cricket season again, and Wisdom is selling Wisdom Cricketers Almanac is selling like hotcakes. If you look down, you'll see a a major new novel from Sarah j Maas. You'll see the Harry Potter Almanac. There's never been a Harry Potter Almanac, and you'll see the novel by the famous American novelist, Anne Patchett, called Tom Lake, and four prime examples of our very successful academic publishing program. And in summary, we hope that the company will continue to benefit from the flywheel effect.

27:45 We are seeing resilient demand across our divisions. We are on track for the growth of EDR and our our strategy. And finally, our trading at the start of its financial year since the March 1 has been in line with our expectations. So that ends the formal presentation, and, I'd like to hand back to our hosts at Investor Eats Company. Nigel Penny, thank you very much indeed for your presentation. Ladies and gentlemen, please continue to submit your questions using the Q and A tab situated on the top right corner of your screen.

28:32 While the company take a few moments to review those questions submitted today, I would like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A can be accessed via our investor dashboard. Nigel, Penny, as you can see, we have received a number of questions throughout today's presentation. Penny, if I may hand back to you and kindly ask you to read out the questions and give responses where appropriate to do so, I'll pick up from you at the end. Thank you. Thank you. So to start with, a couple of the questions that were submitted before the before the presentation, and they were what what happened to the admin costs year on year. And that's a very simple explanation. We didn't go mad. That was the impact of the well, all the acquisitions, but in particular ABC CLIO, which as some of you will know was very significant acquisition of £17,000,000 we paid for that last year.

29:29 That came in in that completed in December 21. So the first half comp and the full year comp have a have a very significant impact on those. So that was the driver behind it. We have been investing in more headcount and so on, but the fundamental reason for that was that. The second point was, what can we expect in future from the academic and professional margin? And then what we've been guiding to in in conversations with investors, what we've said is that we think the sort of the the 16%, that mid teens margin that we've achieved this year is a sensible area that we can is a is a is a is a fairly sensible level. So I think that's a reasonable expectation going forward. If you can just give me a minute, and I will find some further questions.

30:36 Okay. Our host, can you I think you'll have to help me out for a minute because we don't I don't have any further questions coming up. Penny, would you like me to even if you scroll, can you not see any of the questions? So then I have, does BLOOMSBURY receive direct benefits, e g license fees, when published titles are used for TV and film? So I'll take that one. Thank you. Thank you very much, Vivek. The answer is typically no. The film rights are retained by authors, agents, and sold directly to the movie studios and streaming services on their behalf.

31:28 However, that does not diminish the desirability of such tie ins to us because a film or a TV show acts as a giant two and a half hour television show, if you like, for buying the book, and indeed it does. When Harry Potter and the Phosphorus Stone came out as a film some years after the book was first published, we saw that book go back to number one on the bestseller list where it stayed for two weeks and then people were hooked. And number the second book, when Chamber of Secrets went to number one, and there was this ripple effect right through all of those titles that were already published in a series by then. So TV and film, fantastic driver.

32:27 Thank you, Nigel. Another question here we have about A and P has some big players, absolutely. Incidentally, many of them rated more highly than us. I think we're being undervalued by the market in this area. How do we decide what areas to focus on and what factors are are important? I mean, that's exactly it. What we choose to do is go into the areas without that competition. So we leave the STEM subjects to the very big players And the areas we are dominant in, like drama and fashion, to give you two examples, are the areas where we can become dominant and indeed have. So we choose areas where, one, we can achieve a deep vertical and we can dominate the market.

33:13 Two, where we already have very strong content, so we already have very strong drama and fashion content before we set those up. And what we've been able to do is create products that are now so strong that other people with content in this area are quite happily to license it to us. So we create an overall we become in in a way in some areas in aggregation can bring that all together. So essentially, we pick our we pick our battles and then and then go for these key areas. So moving on down here. Good morning, RBA. So you've talked about color on The US revenues and how we we develop. So we do disclose these in the back of the presentation. We give you the revenue by source, and then there will be further detail that comes out within the annual report, which is about three weeks' time, I think.

34:09 But essentially, what we've seen in The U. S, both through acquired and organic growth, is really significant growth. So ABC is a US based business. They were selling entirely out of The US, and we've seen a lot of BDR growth in The US as well. And equally, Sarah J Maas is a US author. We discovered her initially from one of our US editors, and a lot of that growth has also been in The US. India, as you know, has had a has had a much more rocky rocky ride through COVID. You know, there's been a humanitarian great humanitarian cost there. And equally, now they're coming out of that and the the economy is really booming. So we're seeing some some really great growth there. That remains a fairly small market for us. The US is the the really significant one.

35:01 Just another comment from from Vivek. Morning, Vivek. So we talked about how the BDR product, how we differentiate ourselves from competitors like RelX. I think we've we talked a bit to that. We choose very different subject areas. Nigel, would you like to talk briefly about the rating? Sorry. What? The the rating of us compared to some of our competitors in the BDR space. Sorry. I was looking at the other questions coming in. Yes. So if you look at the stock market rating of the big information giants like RELEX and in America, John Wiley and Pearson and Taylor and Francis Informa, they're higher than BLOOMSBURY. So I think the opportunity for us is to communicate with with people like you that the direction in which the company is traveling here at BLOOMSBURY of growing the digital resource side may eventually result in a new perception of the company away from sole dependence as we had before we started Bloomsbury Academic on high street sales.

36:27 Thank you, Nigel. And then I think one of one of our favorite questions, what are we reading at the moment? Nigel's always well ahead of me on this one. I am reading High Time by Hannah Rothschild. It's the second book in a comic trilogy about a extremely wealthy aristocratic family and the the crazy things that those characters get up to. It's a fantastically enjoyable romp and and will be a big seller after it's released today.

37:15 Great. And I have just finished Stolen Focus by Johan Hari, which I can incredibly recommend. It's a very zippy read as you would imagine from an ex journalist. It's slightly terrifying about how our our focus can be sucked away, but it's it's extremely good. And I'm about to start reading Crespasses, which has been very, very, very well reviewed, and I know everyone who's read it is absolutely lovely. Trespasses is the novel to buy for your summer reading. A great love story. Illicit love set in the troubles in Northern Ireland in nineteen seventies. Great book. Great. And I think that concludes the questions we have. So Penny, Nigel, that's great. And I think you have addressed all the questions you can for investors today.

38:09 And, of course, the company will review all questions submitted today, and we will publish those responses on the investor meet company platform. But before the redirecting investors provide you with their feedback, which shows particularly important to the company, Nigel, could I please ask you for a few closing comments? Well, thank you all for being here. You're a particularly valued category of potential shareholder to Bloom Street because we are owned mainly by mighty institutions like BlackRock and Canaccord Genuity who are happy with their investments, and so there's very little trading that goes on from the institutional side.

39:00 And we value buying in and buying out, if that's the right word, that goes on in the investor market. And so I reckon we have missed a couple of questions, but we will follow-up on those later. And thank you all very much for being with us today. Nigel, Penny, thank you once again for updating investors today. Could I please ask investors not to close this session as you will now be On behalf of the management team of Bloomsbury Publishing PLC, we would like to thank you for attending today's presentation.

39:50 That concludes today's meeting. Good morning to you all.