Bloomsbury Publishing Plc (BMY) Earnings Call Transcript & Summary

Good morning, and a very warm welcome to the Bloomsbury Interim Results. We're particularly pleased to see so many analysts and on the live stream to see shareholders and potential shareholders. So a very warm welcome to you all. I'm Nigel Newton, Chief Executive of Bloomsbury. And on my right is Penny Scott-Bayfield, Chief Financial Officer of Bloomsbury; and Tamsin Garrity, Head of Investor Relations. We're delighted to present to you now our results for the period, the rather interesting Bloomsbury months of March through to the end of August. So you can see on Slide 2, our strategy of diversification has created a portfolio of portfolios. That is our mantra at Bloomsbury, much as our shareholders, the fund managers do in their own portfolios in an effort to balance the vicissitudes of one area against another. And we believe we've created a resilient business model for long-term success. We're pleased to report revenue of GBP 160 million in the 6 months, profit of GBP 24 million with a strong and improved margin of 15%. We've signed our first non-exclusive AI licensing agreement with potential for more on the one hand and on the other, we have major bestsellers from our consumer division, including Gillian Anderson, who dominates the charts in the second half and has been #1 in paperback for 9 weeks now. It is of enormous economic significance that our best-selling author, Katherine Rundell has secured a long-term film deal with Walt Disney Studios for her brilliant Impossible Creatures series. We demonstrate our confidence in the future by increasing the dividend by 5% and stating that we expect to deliver full year results ahead of expectations. Now on the next slide, Bloomsbury's investment case. Let's consider that for a minute. We built a portfolio, which has the benefit of being diversified across academic and consumer publishing digitally and internationally for resilient success. That is rare in our industry. Now on the next slide, dividend. Look at that marvelous upward swing. We have a strong dividend record, which any plc would be proud of. This continues with a 5% interim dividend increase and expectation of the same for the full year, which reflects both the achievements of this financial year and our confidence that the company is well positioned for further development. And now may I hand the mic over to Penny for the financial highlights. Penny?

Thank you. So good morning, everyone. Starting with our key financial highlights. First of all, the revenue of GBP 160 million, which you can see against the last 2 years. Our pretax profit was, as Nigel mentioned, a 15% margin, so that's delivering pretax profit of GBP 24 million. Our diluted EPS of 22.98p, benefiting from that lower effective tax rate, net cash of GBP 2.4 million, which we'll come on to expand in a minute. And as Nigel has mentioned, the dividend per share of 4.08p at the interim, a 5% increase, continuing our track record there. So moving on to our strong balance sheet. So net cash, GBP 2.4 million, that's net of our current GBP 20 million loan. Some of you will remember, we took out a GBP 37.5 million loan to help fund our acquisition of Rowman & Littlefield in May '24. We've used our good cash position and generation to pay a further $10 million of that -- $10 million of that early, and that's on top of the $7.5 million that we paid down at the end of the previous financial year. Then we -- our working capital, you can see the increase there. That's mainly around timing of our debtors, but you will see that impact coming through in the cash flow as well. Overall, as you can see, we remain our strong balance sheet, which really underpins our opportunities for the future. So moving on to our cash flow. 3 points I'd like to highlight here. First of all, you can see that trading strength delivering the GBP 24 million of profit in this first half. You can see the GBP 9.4 million going out to dividends, rewarding our shareholders who remain front and center of everything we do. And then you can see the impact of the increased working capital coming through in that first half. We also highlight the advances paid in the period. If you think of that as our pipeline of future consumer titles. So you can see that remains strong and royalty payments were always -- that's the one payment I'm always extremely happy to make. That's benefiting our [ aoses, ] you can see how they're really sharing in our success. So coming on now a deeper dive into our Academic and Professional division, which, as you know, this is -- we're presenting it on its own for the first time. So you can see here, first of all, the revenue up 20% in the first half. And as Nigel has mentioned and we'll talk more about, that's benefited from our first non-exclusive AI licensing agreement. And you can see that has benefited both the revenue and the profit in this first half. We're very pleased to say the integration of Rowman & Littlefield, as many of you know, we fully integrate all of our acquisitions, and that's substantially complete. And I know we're sort of referencing it almost as a -- taking as read that we've done so well on that, but integrating an acquisition that's 4x by a factor of 4, the largest acquisition we've done, I think, is a real testament to our operational effectiveness. And of course, that allows us to really start benefiting from and leveraging their great content. So we'll come on to more about that shortly. And then as we've highlighted over the last 2 years, we're seeing continued budgetary pressure on the U.K. and U.S. institutions in the academic market. But to finish on a more positive note, the expansion in Asia. So we've talked a bit about the opportunities for growth we see here as we see geopolitical pressure in the U.K. and the U.S. markets, there's huge opportunities in those Asian markets, and we've referenced that before, but just highlighting again, we're continuing with our plans to open that office by the end of the year and really tap into those opportunities in that region. So moving on to the Academic division's P&L. So you can see here, we split out the 3 key types of income here. You can see the digital sales included BDR and the AI licensing within here. You can see that great growth both on last year and the year before. You can see actually the surprising resilience of print sales in a market that's really strategically shifting to digital. And you can see that's some resilience in there, but also the impact of the R&L acquisition. We brought on this incredible quality content. And then looking at the margin strength, which Nigel mentioned, you can see 24% for this period versus the mid-teens, 16% that we've seen in the 2 previous halves. So we've generally guided to a mid-teens margin, but you can see the potential for upside there.

So on to AI licensing. I'm incredibly excited about the potential, which AI holds for Bloomsbury, both on the sales side in licensing, but also on the streamlining of work processes. So we've signed our first agreement in the period. As we've stressed, we can do as many of these as we like, and we are in contact with all of the major LLMs that you're aware of. So watch this place. And it's very important for those LLMs to be trained on the highest quality content, which is what we think the many tens of thousands of titles in the academic area that we've built up represent as an opportunity to these tech companies. We've also engaged with our authors inviting them to opt in. If they don't opt in, then their work won't be trained upon as a result of our deal anyway. It could be due to piracy, but we wish to follow the wishes of our authors, and that's very important and not all our competitors have chosen to do that. Now most importantly, when you have a contract with an AI company, you have the guardrails that you want in place, and that's very important. And I think the large amount of litigation, such as the settlement for, I think it was $1.5 billion, which is eye-watering with Anthropic is encouraging other people to enter into agreements with publishers rather than inhabit the Wild West that they were before. So that is the way the landscape looks at the moment and further potential opportunities are in discussion at the moment.

So updating on Digital Resources, which, as you know, is our digital products specifically created for the academic market. So here, revenue of GBP 13.6 million, slightly impacted by the adverse -- or getting the weaker U.S. dollar. So we were up in constant currency. Just we wanted to really highlight the resilience of this. We've talked before about how when people get BDR products, they hang on to them. They become a really core part of the teaching and learning and evidenced here by subscriptions being at 50% and renewals rate we're maintaining at 90%. So that really speaks to the resilience. And then as I mentioned earlier, really starting to leverage the great quality content that we bought from -- in a print perspective from our R&L. So we're continuing to expand our products and the opportunity of R&L digitizing. So we've got over 6,000 of R&L titles digitized, and that's enabling us to enhance, including the enhancing the BDR collections title count, which is an important part of being able to grow that.

So the greater diversification of our consumer publishing portfolio continues to shine through with a real breadth of critical and commercial success across multiple genres, as you can see in the slide behind me. In nonfiction, Gillian Anderson's Want has been in the top 10 for 15 weeks, including 9 in the #1 spot. And the good news is there will be a sequel to that book to come. In Children's, I've alluded to Katherine Rundell remarkable deal apparently agreed personally with the President of Disney, Bob Iger, so we can be confident it will receive good treatment. In addition, the Warner HBO Max series of Harry Potter has started filming last month at Leavesden. And if you just consider the number of books, 7 and consider the growing word count as they move through the series, I think we can expect approaching, well, dozens and dozens of different episodes. This will run and run. And we certainly found when the original movies came out from 2000 with the Philosopher's Stone that the books were propelled back into the bestseller list by people who've seen the film, a mass market audience who wanted to understand what was really going on. And there are 800,000 new 8-year-olds in Britain alone every year, let alone the entire -- perhaps some of you are responsible for some of those, let alone the many other countries around the world where we publish the work in the English language, which is really everywhere except the United States. So the series, no release date has been announced by HBO Max yet, but we conjecture that it will be in early 2027, helping to introduce the series to more children.

So coming on to the consumer P&L. So first of all, the total revenue of GBP 113 million. I think reminding everyone, as you know, versus a very strong comp last year, but you can see that's still up 13% on 2 years ago. So you can see that underlying strength. When we're looking against a more normalized year of more normalized period of 2 years ago, you can see the resilience of both print and digital. And I think within digital, really highlighting the audio that we'll come on to next is really -- we talk about our portfolio of portfolios and how we can monetize content. And hopefully, this morning, we're sharing with you some of the new ways in which we're doing that, but the expanding ways in which we're doing that. So with this deeper dive into audio, one of the key things is that we've been able to increase the market, and that's -- we're not going to take all the credit for that. Spotify had quite a big influence there. So as you remember -- some of you remember, we entered into a non-exclusive deal with Spotify as well, and we've really seen the market expand. So that's a wider market, and that's reaching new audiences, which we're seeing almost on a daily basis. And as that's happening, we're also increasing our scale. So you can see 1,500 titles. We really prioritize the titles which we think will do best in audio and the scale of the new titles that we're bringing on to those platforms on an almost daily basis. We've highlighted some of the narrators. I think that Katherine Rundell's, the Impossible Creatures Sam West. That's a particularly great example of a really super combination, which is doing really well. And this is award-winning content. So in any market, what we have to keep doing, which we do so well is to produce incredibly high content, and that really gets the audience reach.

So look at that extraordinary list. These are our current best-selling and some our upcoming titles still to go this autumn. This year has an array of titles from, as you've seen, Samantha Shannon, Katherine Rundell, J.K. Rowling and Poppy O’Toole. In Academic and Professional, we're very excited by the launch of the Marvel Age of Comics series. You wouldn't have guessed that would come from our academic division, but it does, and it's been embraced by Marvel putting them further in the history books. So looking to our innovative publishing of Harry Potter, we have the Pocket Potter series launching with one book per character aimed probably at a younger audience than the books themselves. But there is such awareness that these books are grabbed by children, and it's nicely timed to benefit from the huge opportunity of the HBO series. Now moving on. We launched our Bloomsbury 2030 vision last year, as many of you will remember and you were there. And we've already achieved much of the operational change that we sought to. Looking at our growth, our strategic expansion in Singapore to capitalize on those huge numbers predicted by the World Bank of an increased student attendance, particularly in Asia, is happening, and we will be live and running between now and Christmas. Looking at our portfolio, the integration of Rowman & Littlefield is substantially complete. That has been a fantastic acquisition. And turning to our people. We continue to be able to attract the key talent in publishing that we wish to. And starting with our new Chief Finance Officer, Keith, please raise your hand and say hi.

[indiscernible] meeting probably in due course.

He still works for the Guardian, but he's come to say hello, and Keith will join on the 2nd of February. So a very warm welcome to you, Keith. On the next slide, the Bloomsbury flywheel keeps on spinning in its virtuous circle of investment in content, driving demand and generating cash to fund further investment. Finally, the Board expects to deliver full year profit ahead of expectations. So on this slide, you will see a moment when Bloomsbury was voted Publisher of the Year at a ceremony in May, which was a good moment to see the achievements of my 1,250 colleagues worldwide recognized. So we're now at the exciting bit where we solicit questions from you. Fiona, your hand shot up like Apollo rocket.

Thank you. It's Fiona [indiscernible] First of all, can you give us more background on the structure of the Singapore market? I mean, is there a group of target universities and are there incumbents? And how are you planning to tackle it? That's the first one. The second one is on the AI deals. What sort of proportion of the authors did decide to opt in? And do they get a benefit from so doing? And the third one, because we have to have 3 is the rule.

It's really not for the rest of you.

It's just on whether there's any improvement in the music in the academic in the U.S., particularly.

Great. Sure. Well, including the name Singapore in our expansion may be deceptive because it isn't about Singapore. That's just a base. It's about China, Taiwan, India, the whole region because that is where new universities are being founded and new budgets are being created to buy the sort of digital resources that we publish. So Singapore, as many of you know, is a great and stable base in which to have your sort of your legal entity, but it's not only about Singapore. On your AI and authors question, that's happening. This is all real-time stuff. So what I can tell you is given that it's pretty hard to get people to sign anything, it goes into the 2 boring pile next. We are very impressed by the number of authors who've signed. And there are many more to come, and we're making ourselves available for individual conversations with authors because AI is the big beast in the room and not everybody understands it. And I think it's changing, if not week by week, certainly by month, month by month as probably all of us start to use AI even more and realize that our future will depend upon having high-quality information in there. Is there a financial incentive? Absolutely. So we've announced an academic level royalty that they will receive from any income that we achieve. And so the permission, the opt-in that we sought is to all AI activity. We're not doing it on a deal-by-deal basis. And the academic market, it has to be great. It is the chief area of investment for most governments in most countries in the world. Yes, it's taken a short-term hit because of new political policies, and we would rather that, that were not the case. But it is and it's the new reality, and we're all operating well within it. And we've made very clear at this meeting and in the previous couple that the significant growth won't be in the old world. It will be in the new world. And we're good at the new world. So watch this space. Alastair?

Alastair Reid from Investec. I'll do 2 with multiple parts. Firstly, we obviously touched on some movie rights. We've seen Fox and HarperCollins signing a sort of reciprocal first look agreement. Is that something you might consider and be interested in? And then secondly, if you can comment at all on your AI agreement, is there any recurring element to that in the future? And did you receive a cash payment for that in the first half?

Terrific. Movie rights. We've had a first look agreement in the past. We had one with the brilliant Creative Artists Agency in Hollywood. But we found that it didn't really move the dial because anything that's so clearly crying out to be made a movie like Impossible Creatures, it's going to happen regardless of that. Secondly, the sort of books from Bloomsbury's very large annual output that movie studios are going to be interested in will typically be represented by a literary agent and agents always retain the film rights. So it's very unlikely that any first look agreement is actually going to have the right to deliver that deal. The Katherine Rundell Disney was very much done by her agent, but enthusiastically cheered on by Bloomsbury. AI agreements. Well, I personally regard the income as recurring. It's not recurring in the sense of getting a royalty every 6 months like a book contract, but we have new contacts the whole time that will be the subject of the AI deals of the future. That's point one. Point two is, does anybody know how many LLMs there are in the world? Well, that includes me. But let's say there are 20. So we've just done one deal and all these people are hungry. So they will recur Alastair in the sense that I see a flow of them for many years to come, and there will be new LLMs. So I think this is the new -- big new business area for publishing. What is the -- there's the tech world, which is so multifarious. But what is the middle letter of LLM. It's language, and that's -- our product is the language recorded on the page, the written word. And if you ask ChatGPT a question, you get the answer in language. So we are the root of all of the riches that will flow from AI. AI, we waited about 2 years before we did our first AI agreement because we wanted the market to really establish itself and the mistakes to be made and people to discover that guardrails are a good idea. What we did notice in those 2 years is that all of those agreements were confidential. And that is because they are in an extremely competitive world themselves, and they don't want to flag to their competitors what they're paying, how much they're paying, who they're paying it to, when they're paying. So I can answer nothing on that. The only way I could be totally transparent would be to do no AI deals, and then I would have no questions to answer. That was one of the questions I didn't answer.

Yes. And no, we didn't.

Okay. There you got an answer. Penny is much nicer than me.

Will Larwood from Berenberg. Just a couple from me. Firstly, it relates to the AI deal. Is it just purely related to backlist titles? Or is it -- will it include an element of frontlist? And then secondly, just if you could remind us on Asia and then sort of the potential ramp-up of that business into next year, that would be great.