Bloomsbury Publishing Plc (BMY) Earnings Call Transcript & Summary

Good morning, and welcome to the Bloomsbury Publishing Plc Interim Financial Results for the 6 months ended 31st August 2022 Investor Presentation. [Operator Instructions] Before we begin, I'd like to flip the following poll. And 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's interim results presentation. We had a very exciting first 6 months to our financial year. They were the best figures in the 36-year history of Bloomsbury in that first 6 months. And Penny Scott-Bayfield 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% and 23%, respectively. Our digital strategy to grow the Bloomsbury 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 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 the 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 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. So 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. And the good news is that the strength of the performance was balanced equally between the Consumer and the Non-Consumer divisions. And for any of you on this call who are new to Bloomsbury's, it's worth emphasizing that, that is our unique strength because our competitors are either entirely consumer publishers, Penguin Random House, HarperCollins, Hachette and so on, or their entirely academic publishers, Oxford University Press, Cambridge, Taylor & Francis and so on. So we combine those and we create a Bloomsbury's portfolio of portfolios marching to the different economic drummers of those two quite different types of publisher investment and abiding strength for us, and in particular, our Bloomsbury Digital Resources, 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 have 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. The key points from this slide. First of all, revenue, as Nigel has mentioned, up 22%. Secondly, our pretax profit up 23%. And thirdly, 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 shown 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 strength 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 story may also be new to the Sarah J. Maas phenomenon and we'll tell you a bit more about her and how astonishing body of work and demand later. Academic & Professional and 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. So a great example of there, the combination of organic growth and how we make our acquisitions really work. Within Adult, growth with 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 year, 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 it's really astonishing slide showing that we've managed to grow revenue in every single channel. This is really absolutely extraordinary and is real testament to the strengths of our content, but also how effectively we are delivering it. Then looking at Print, you can see Print demand remained 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 all appreciate, and that's a combination of organic growth, up 41% and the impact of our acquisitions, in particular here, ABC-CLIO. So reporting 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. 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, incredible unique content and get 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. And our most recent acquisition, ABC-CLIO, gives us even more access to that North America market. We mentioned 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 a 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 Bloomsbury Digital Resources, we are worldwide in the higher education market, buying ABC-CLIO has given us really -- 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. 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 example, 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 GBP 41.5 million remains strong. That's key to giving us the self-generated fire power we have for future acquisitions and providing more great content. And remember, year-on-year, that's following the acquisition in December of ABC-CLIO for just under GBP 17 million. So we remain highly cash generative. The other point was to just highlight where we are on working capital. It's a key benchmark on 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 FX translating dollar stock balances into sterling, obviously, has produced a big increase year-on-year with 2% coming from acquisitions. But our underlying stock have both 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 GBP 15.9 million of profit coming in, that's absolutely key to jumping and generate -- 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. Then we had a negative GBP 5 million 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 shared some of the key big working capital movements on the right-hand side, how much we pay in advance. This 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 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. And thirdly, our progressive dividend 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 the consistency of our dividend growth. And now back to Nigel.

So in the Academic & Professional part of the Non-Consumer division, we had a fantastic 6 months with 38% growth driven in parts by the great success of Bloomsbury 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 us 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 public to repurchase 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 markets that we aim at. And, of course, fundamental to all BDR projects or partnerships where we carry other people's content in addition to our own increasing the glue of them. Next slide. So there, you can see the organic growth in BDR of 41%. The important figure of the number of institutions who are trying our products, those trials or what converts sometimes 2, 3 and 4 years later, even 5 into actual purchase. So it's a very important statistic about our -- health of the pipeline. And you can see in the bottom right, whilst in 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 BDR division. We've made acquisitions or 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 writers worldwide. So that means there's plenty of upside to come as we roll out a wider customer base. Special Interest is the other parts 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 process a year ago, albeit a small one. There are some of the titles 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 tunnel in society and working from home and not working from home, everything else. So meanwhile, further in the Consumer division, Adult trade, which were particularly famous for. And you see that revenue is up a hand of 7% and profit of GBP 200,000, down slightly as we prepare all this for the future. We had a Booker Prize shortlisted table 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 the industry 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 and was absolutely sensational and it hit #1 on bestseller list all over the world.

So looking at our long-term growth strategy. There are 3 core elements of this. And I'm very pleased to report that we've made great progress across all these 3 areas. So 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 the 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. 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 the key efforts around our employee experience and around sustainability. With employees, we've absolutely continued to prioritize our staff. This is absolutely core and central to our values and what we do. And we've done a number of things, a number of new things in addition to what we've already done over the last 6 months, and that included a GBP 1,000 salary increase to all of our staff. So obviously disproportionately benefiting the more junior staff is what we saw absolutely 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 that's a 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 had strong contributions from our mainstay authors like J.K. Rowling, with the new illustrated edition, Harry's 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's certainly a very powerful memoir A Visible Man that will show you -- we'll show you a couple of videos and one of them is about him. And then we've also welcomed a great historian in Orlando Figes to our list with his timely book The Story of Russia. And then Alan Moore, a legendary author who has just [indiscernible] new book Illuminations is seller well for us in the U.S. where it was featured on front cover of the New York Times Magazine and in the U.K. as well and some of our brilliant Children's authors Brigid Kemmerer with her latest book and Catherine Doyle. And finally, Kamila Shamsie, who won the Orange Prize with the previous novel Home Fire and this is sort of a great new celebration of female friendship, Best of Friends, sets 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. Our balance sheet is strong. Both divisions are firing on all cylinders. The BDR division will stand out in 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 to show you 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. [Presentation]

Okay. So the first video, if you didn't discern it, it was about the Booktok phenomenon on TikTok which has driven so many sales in our industry in the last 1.5 year and the second one was, of course, Edward Enninful's A Memoir: A Visible Man. So we'll hand it over to you all to handle questions.

Great. Well, 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 did not suffer greatly in recessions because they're cheap and affordable item which hold there even as other bigger items with household expenditure are slashed. Of course, history is not the perfect predictor of what will happen in the future. But I feel relatively confident is based on what's happened so far because of 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.

Thanks, 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 performance 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 printing higher and printing earlier, to make sure our supplies in shops and that -- or is it with the off-line, 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 motor bikes or 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 that 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 to hire 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. So we used to see sort of 2018 in terms of our Consumer profit. We're absolutely not expecting that this year, and we see -- in fact, you're going to see slightly potentially even slightly softer second half because we don't have a new Sarah J. Maas 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 resolve 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 Bloomsbury strategy. And we continue to target them. We have made close to 30 acquisitions now, and they are vital parts 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&A function here and there that's constantly busy evaluating opportunities for big and small. And we had a very successful acquisition, a year or 12 months ago with ABC-CLIO and Art Films. So the bar is high at the moment.

And Nigel, we were mainly in the academic space, weren't they feeding our Bloomsbury Digital Resources?

Yes. The ABC-CLIO was completely fundamental to Bloomsbury Digital Resources as was Art Films, Head of Zeus was Consumer publisher and differencing, feeding our strength in that area as well.

Thank you. I think feeding into that or coming on to that question nicely is a point about feelings about our about our ongoing cash level. And I think we -- what we've said very clearly is -- 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's providing credit retail for a fire power 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%, and 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've shared the next 5-year guidance -- a 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. And we've been really pleased with that. But I don't think we should take necessarily the first half of our -- as our read across, especially with how strong ABC has been performing for the next 5 years. And equally, just to clarify, when we're talking about 30% margin, that's on the organic growth. We've fully maintained -- intend to maintain our underlying margin. And in fact, with ABC-CLIO, we've been delivering even higher than our current -- our own margins. So we're still being extremely ambitious here. I think that's all the questions. And there's 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 a non-Bloomsbury book, but I hope it will become a Bloomsbury book. It's called The American Mission by Matthew Palmer who was 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 skulduggery at the top. And I currently have this book being read by the Head of Zeus, our genre fiction publishing colleagues. And I'm hopeful they'll be as soon as I am on this book and take it on for the U.K. and Commonwealth rights, so you can order that book, but it would have to come from America, where you get [indiscernible].

Nigel, Penny, I think you've actually addressed all those questions from investors. And of course, the company will review all questions later today and more publisher responses on the Investor Meet Company platform. But just before redirecting investors to provide you with that 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 and currently the President of the U.K. Publishers Association and 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. and not everyone is doing as well as Bloomsbury is, but most people are doing very well. And it's really great to have this old-tech products that we produce is being around since [indiscernible] having such primacy in the lives of consumers in 2022. So I think our good fortune is online, but I think the fact that we publish in the English language, this [indiscernible] is now the language of the world and a great instance of Britain and America's soft power and it certainly makes it easy for us selling books without 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 to be please look at bloomsbury.com. Please order some of our books for your friends and family as gifts this Christmas and creates the 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 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 it will be greatly valued by the company. On behalf of the management, so of Bloomsbury Publishing Plc would like to thank you for attending today's presentation. and good morning to you all.