Bloomsbury Publishing (LSE:BMY) — Interim Results for six months ended 31 August 2023.

0:00 Good afternoon, ladies and gentlemen, and welcome to the BLOOMSBURY PUBLISHING PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the Q and A tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so and these will be

0:31 available via your Investor Meet company dashboard. Before we begin, I would like to submit the following poll. And I would now like to hand you over to the executive management team from Bloomsbury Publishing PLC. Nigel, Penny, good afternoon. Good afternoon, and a very warm welcome to all of you, and thank you very much for coming to this presentation of our interim results. On the first slide, you'll see reference to our fourth consecutive double digit growth period in the first half of the year. This is a a great strategic victory for Bloomsbury because we used to have very year end weighted years because of the Christmas gift book market coming right at the end.

1:17 But we've worked hard over the last decade to

1:22 try to create a a more balanced year. And one of the main planks of that has been the developments of our academic publishing list, which has its high points much earlier in the year than Christmas and has given us the balance that we're now starting to achieve, which will be reflected in the dividend phasing, as we will come on to later in this presentation. As you've seen, profits are up 11%, as are sales. We refer there to the flywheel, effect that we're benefiting from, and also to the growth in our digital channels and BDR revenue, and and finally, an increase in the dividend.

2:16 If we can go on to the next slide, please. So good afternoon, everyone. Taking you through the the key things on this financial highlights page. Nigel's already mentioned our 11% growth in both revenue and profit in this first half that we're very proud of. And then I'd also like to call your attention to the 14% growth in the EPS figure. And finally, reiterating what Nigel said about the change in the balance of the dividend. So the dividend's gone from $1.41 to $3.70 pence, and that's a change in the balance. So the full year expectation remains unchanged. So moving on to what's behind these great results. If we look on the left hand side, and that's the consumer division, so that's effectively our trade director consumer sales.

3:05 You can see there's 17% growth in the revenue, 26% growth in the profit, and that's our margin increasing by a basis point. And on the nonconsumer side, so this includes our academic and professional sales, we've increased that by 2%, and we'll come on to what's in the margin mix a bit later on. So looking in more detail at the revenue, this breaks it down by the subdivision. So you've seen that 8% growth in our adult division. Some of you who've been following us for some time will know that we've been putting a lot of time and effort into adult and changing our changing our focus here, and that's really good to see that delivering. 22% growth in children's, really exceptional, but it's very encouraging to see the most the the strong consumer demand for our content both across both adult and children's.

3:58 Within academic and professional, we were in line with the first half last year where we grew by 38%, and we we're very pleased with our 7% growth in special interest. And that, as some of you know, is our niche targeted publishing for niche communities, so whether it's around sailing or cricket or wildlife.

4:20 So moving on to the different channels. So you can see 8% growth in print. So you can see that continued strong demand for print, and that's very much weighted towards the consumer side. So we're seeing no drop off in appetite at all. In fact, quite the opposite for consumers' demand to read in both print as well as in ebook or audio formats. You can see there's 32% growth in ebooks. So that's growth in the ebook format for both the academic and professional division, particularly strongly, but also consumers. Certain books lend themselves, but people really want these in both formats or or in all formats. And just a reminder to this audience, we are we are totally platform agnostic.

5:05 So our aim is to produce fantastic content that our customers want and then put that into whatever channel best suits that customer. We're I'd particularly like to highlight the 48% growth in audio in this first half. So audio is something that we've seen great potential in for some years now. It took a back bit of a backseat in the pandemic because it's very much driven by consumer behavior. But now that people are properly traveling and and doing all the other activities that we were very limited on for a while, we're really seeing this this this growth. And this is an interesting channel because it's mainly additive. People consume audiobooks

5:46 at a time traveling at the gym, walking, or whatever, running when they wouldn't be able to consume either a print or an ebook. So this is very much additive. And then the final point here is on the the BDR where we consolidated last year's first half growth, which was 69%. So an incredible comp there for us to to to consolidate and hold on to.

6:13 So moving on then to update you on our strong financial position, updating you here with our the key thing the key metric here is on the cash. So we have 39 just over 39,000,000 as at the end of August, and that, provides the basis for our very strong war chest for future acquisitions, which we'll talk more about later on in this, presentation. The acquisitions remains a key part of our strategy, and this firepower is important to what we can continue to achieve here.

6:46 Looking at our first half cash flow, we've highlighted here the key movements both in and out and what's what's come to there. I think one thing I draw your attention to here is on the right hand side where we talk about advances. So we paid out advances of just over 11,000,000 in the first half, and that's 3,000,000 up on last year. And advances represent effectively our future consumer pipeline. So the fact that that's increasing is very healthy. And just a reminder that these are effectively prepayments royalties to our authors that are paid the first tranche is paid on the the signature, and then they're paid when the manuscript is delivered, when the hardback is published, and when the paperback is published. So, Nigel, if the dividend slide.

7:33 As you can see, there's we've continued our pattern of growth. Of course, the August 23 bar is determined by the change in the phasing rather than the a change in the fundamental amount of the dividend for the reasons that I discussed earlier. And we're aiming to keep cover on the dividend in excess of two times, and we're maintaining our full year dividend guidance. Thank you.

8:10 So looking at the investment case, I can't stress too much the importance of our combination of general publishing or consumer as we call it and academic publishing. Very few, if any other publishers of our size do this. It is our strength. It means that we can claim to be a portfolio of portfolios because they have completely different sets of customers, so we aren't tied to the fate of of the high street, for example, because we're also benefiting from the institutional budgets that fund most academic sales.

9:00 You can see there are a 127% growth in adjusted diluted EPS growth over five years to this year. And looking down at the acquisitions box at the bottom, BLOOMSBURY have made 19 strategic acquisitions since 2008, in fact, over 30 since 2000. We built ourselves to being one of the strongest and most successful independent academic publishers as well as continuing to be a robust publisher of best selling books for the general market as well. We continue to be approached by people who are looking to divest and the deal flow is good, And and we're hopeful that we will continue our track record of finding very attractive companies like ABC, Clio, who we found two years ago.

10:05 Thank you. And there's a slide showing the the other counterbalances in our portfolio the portfolios. First of all, channels. We're we're in prints, we're in ebooks, and we're in audiobooks. Secondly, territories. We've now got 76% of our sales coming from overseas, and we're not as tied as we were to the vicissitudes of The UK economy. So that's a a a great strength for us, and we're particularly doing well in America. And then finally, markets, as I just discussed, our portfolio the portfolios.

10:51 Thank you. So coming on to our academic and professional division. So here, we've delivered revenue of 36,400,000 in the first half. And as I mentioned earlier, consolidating that exceptional h one growth last year of 38%. I touched on the accelerated shift from print to digital. So we've seen we've been planning for the print to digital shift in this market for well over eight, nine years now, but that's actually accelerated even faster than we were expecting in this first half. So this is pretty much a pure play swap from print products to ebooks. That suits us very well. We get good pricing on ebooks, and, also, we don't have any of the operational challenges of print.

11:38 So the margin here was 16% for the first half. That's in line with the full year margin on this division last year, and that's very much as we've guided to for this division.

11:53 We move on to look at more detail at BDR. So just a reminder, our BDR strategy is to build high margin, high quality, repeatable digital revenues and accelerating our growth with acquisitions. We've done this very successfully as many of you know. So we increased our subscriptions to 47% of BDR revenue, so really building on that repeatable point. And we've maintained our renewals rate here at over 90%, and we've consistently kept that at over 90% since we first started this business. So we've built the subscription revenues, and we're maintaining them and building them.

12:40 So this talks about our BDR strategy a bit more. And reminder that our growth target here is our next five year target. We smashed through the last one. It's to achieve 40% organic revenue growth over the five years to February 2028 to reach 37,000,000 of turnover. And that's organic. So future acquisitions, and as many of you know, many of our acquisitions have fed increases in BDR either through increased content from the print side or with ABC CLIO, both increased content but also buying more digital products and access to new markets. So anything from future acquisitions will be in addition to this target. We also remind our our audience of the scale of the opportunity here.

13:28 So globally, the addressable academic institution market, these are higher education institutions. We're in just over 50% of those, and that's people who were taking one or more products, but they may only be taking one product here.

13:43 And the schools market, and that's a market we gained access to through the acquisition of ABC CLIO. We're in less than a fifth of that market. So, again, you can see the scale of the opportunity, and it's a combination of the opportunity and our confidence in our demand for the content that that forms the basis for our confidence in our future target. So moving on to our smallest division, which is special interest. This is around targeted publishing for these specific communities, and that our targeted publishing strategy is paying off. Very pleased with the 7% revenue growth, and we have an ongoing drive to profitability here.

14:28 I referred earlier to the the the second half weighting of the the traditional Bloomsbury. Of course, the adult trade list was the the core of the original Bloomsbury, and it is very oriented to the gift market. So we never look to the first half to be the major part of the year in in this division. There was some growth in sales, 8% and a a flat profits. But since the period, we've seen a number of bestsellers. Just sticking with this here, we've had some some great prize victories with Trespasses by Louise Kennedy and a number of other books.

15:22 In the children's division, it's a different story, where that is up 22% and and profit is up 29% to 11,000,000. We're particularly from Sarah j Maas, who's mentioned in the right hand tablet, and that is not a gifting purchase. Those are fans buying her books for themselves and regardless of the of the time of the year. Harry Potter has also had a good period and a good post period because in October last month after the period, and we published the Harry Potter Wizarding Almanac, which has been a a massive success. It got to number one.

16:14 We print it for the American market. For Scholastic, it's got to number one over there and to number three in The UK. On the next slide, we drill down a little bit on the fantasy market because it's become an important driver at Bloomsbury. In many ways, it always has been because of Harry Potter. But with Sarah J Maas and Samantha Shannon and the the sister genre, if you like,

16:47 of science fiction with, the three body problem Netflix series coming early in the New Year. This has been a fantastic genre for us. The overall market growth, as you can see in America, is a stunning 9141% in in The UK. And on the next slide, we give a a report card on our achievements against our long term growth strategy goals, And I I won't run through those one by one because the the report is very clear there.

17:34 But just to emphasize in the in the bottom tablets, the importance of US revenues increasing to be 46% of group revenue. Again, that is in fulfillment of a long held strategy to try to reflect in our own turnover the the worldwide book market. And, of course, America is the biggest English language book market in the world where we have been underweight, and we're now we're now coming back and doing really well there both in academic and in general books. On the next page, we talk about ESG.

18:19 I'm sure for many of your own organizations, this has been a dominant theme of the last three years and the changes that we've made have really benefited us. We've won two awards in the industry for diversity and inclusion. In fact, we won one SISI award, the the master investor awards in June where we won small cap company diversity and inclusion awards. So we're really pleased about that. We've launched a brilliant mentorship program and a number of other initiatives.

19:05 In sustainability, our track record has also been good as we seek to reduce our carbon footprints, not only directly in our company, but through the third party suppliers who are the major producers of the of the carbon that we are the catalyst to, namely printers, shippers, and carriage companies. And finally, on ESG, we say in the right hand space, Bloomsbury's core business of publishing books to inform, educate, and inspire is itself a social good. Thank you. And then if we take a look at the actual books that will carry us to the end of the financial year, as I have alluded, several of these have already become bestsellers since the period we're reporting on today ended on the August 31.

20:12 We're all going on a ghost hunt, the marvelous children's book got to number one. Ghosts, tying in with a television series of that name is also in the top 10. The Harry Potter Wizarding Almanac, as I say, has been a big bestseller, Impossible Creatures by Katherine Rundell. And then the rest is history. Many of you will know the famous podcast of that name, and this is a sort of miscellany of historical facts based on that series and compiled by its two famous podcasting authors. And finally, right there in the middle, the the Sarah j Maas Spectacular.

21:04 That's coming soon. And finally, this is the summary. We we are finding resilience demand for our content in both academic and consumer. We're on track for our BDR targets. We are benefiting from the flywheel investments in content driving strong consumer demands and generating cash for further investments. And finally, we're confident of achieving market expectations for the year end, is now about 3.5 away on the February 29.

21:52 Thank you very much. Nigel, Penny, if I may just jump back in there. Thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab that's situated on the right hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, 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 your investor dashboard. Nigel, Penny, as you can see, we have received a number of questions from investors. And thank you to all of those for submitting their questions. Penny, if I may just hand over to you just to chair the Q and A session and just read out those questions and give your responses where appropriate, and then I'll pick up from you at the end. Thank you. Thanks, Jake.

22:38 So the first question is why make change of dividend phasing now, and is this phasing going to continue in future years? So Nigel talked at the top of the call about the the success we've had in building the portfolio and changing and fundamentally the strengths of that, meaning that we are much more of a balanced business now. And that means that we're in a position to move from this very second half weighted final dividend. So it was between 8590% of the full year dividend. We're confident that now we're sort of three, four years into this much better weighting, that we're confident in making the change now. And, yes, absolutely, this is a permanent change. So we're expecting this pattern to continue, and therefore, we think this is a sensible reflection in the dividend.

23:26 The next question is about BDR and the schools market, about the competitive environment and and building out building out our our products. So, essentially, by expanding into this market, it's it's the reach in the market. So we have with with the ABC CLIO acquisition, we bought a dedicated and very good school sales team, and it's about expanding their reach. So this is essentially the people we're not selling to tends to be people we haven't yet met. It's all people who are not yet using the full scope of the digital products that they can. So I think the the case for using digital products has now been has now been very much made for us very effectively.

24:13 Students want and expect it. Faculty staff, teachers, or or or higher ed staff absolutely expect that content and to be able to use that content in this very effective way. It's far more powerful than the sum of some of ebook ebook titles. So it's a very, very powerful tool. So it's a question of reach and getting into those getting into those schools. Just having a reviewing of this. We've been asked about adult consumer sales being a being a lower margin business, and I think sort of structural and strategic importance to Bloomsbury of of adult. Nigel, would you like to take this?

25:02 Yes. Well, in the adult trade division, which was, if you like, the original heart of Bloomsbury, we are very much in the hits business, like people who are in music or in films or television. So not only do they not typically occur in the first half of the year, Sometimes they don't occur at all in a particular year. But that doesn't mean this isn't a great area, and many of the the group's most successful books in the last thirty seven years have come precisely from this division and sometimes giving the the adult trade division a really bumper year.

25:55 As I've mentioned, we've had a number of bestsellers since the August 31 reporting period, so you'll have to watch the space. And also to say there is no major publishing group that doesn't have a an adult trade division because not only is it in a sense casting the the mantle over the rest of the company's reputation. It's what you become famous for with your big bestsellers. But secondly, it's the area where you can have real runaway successes. And so the key at Bloomsbury has been to counterbalance that volatility, which is an attractive volatility because it can create explosive upside potential for shareholders.

26:56 But to counterbalance it with a steady, more predictable, higher margin activity of academic publishing. So in effect, we've we've hedged against the the volatility with the academic side. We're an unusual company, and having done so, we've made a big success of this and welded into one lean unit with five of the seven departments in publishing being shared, finance, production, HR, legal, and so on. And only the the commissioning of the book side and the marketing side are separate.

27:43 So there's been great strength in this portfolio of portfolios. The next question is talking about growth in the BDR division and where that's where that's likely to come from. And so I think just to reiterate what we said earlier in the presentation, we we are ambitious for growth both through acquisitions and organic growth. We stated very explicitly our organic growth target, which is the 7% CAGR. And but, also, we've we said we can't quantify it, but but, also, we intend to continue our very strong track record of building b BDR through acquired content. We also acquired potentially acquired platforms. So the next question was about would we consider with our our cash balance, would we consider share buybacks or special dividends?

28:40 And I think to to be very, very clear here, we see more opportunity for growth through investing the cash as we've continued as we have done in the past through organic organic growth and through acquisitions. If there was in the future a time when we felt that we couldn't achieve that same level of growth, then we might consider, alternative uses of that capital allocation. But just to reiterate, we see more opportunity there. Just following I think we've covered a lot of this. We've there's this question about a strong balance sheet.

29:28 That's excellent. Thank you for that comment. What is the right capital structure? We believe we have a sensible capital structure. As we said, the cash balance that we've been building up, our main priority for that is to be able to reinvest it both through organic and acquisitions and generate future growth. So that's how we intend to optimize future returns and and get really get the value that we think we believe and we know is in the is in the in the business. That's fine. And one question about one someone's picked up from the annual report. One customer accounts for 26% of all sales. Is this Amazon?

30:13 We couldn't possibly comment, but that's that's not an unreasonable proposition. I think in terms of this risk around that level of concentration, Nigel, would you like to comment on that? I I think Amazon have been a fantastic contributor to the growth of all publishers making books available twenty four hours a day, seven days a week, and with their fantastic range of distribution centers and and very speedy delivery. Not to mention the leading position they've taken in the ebook market and the audio book market.

30:58 In terms of risks, I I wouldn't make a comment on that, but I would say that the government has and the governments of most countries are concerned about that. So in The UK, the digital markets bill is presently going through the House of Commons, and its aim is to reign in some of the unbridled power of tech platforms generally without naming any one of them as you have done in particular. So that's gonna include Facebook, Google, Amazon, and so on. And and that is a good thing, I think, because it it's very difficult to get this right, and and the people who seem to get it the most right are regulators.

31:58 Indeed, it is the case that the EC who are ahead of us passed their own digital markets bill over a year ago, and and that's had a calming effect. And in The United States, the federal trade commissioner, Lina Khan, is currently taking action against certain, large digital companies, on particular business practices. But to wrap up on this, the plan in The UK is to work through the the CMA, the Competition and Markets Authority, who have created a substantial units called the DMU, the digital markets, units run by Will Hayter, and their, their job will be, to act as, if you like, the policeman on this issue. The same thing happened in 2013 when the grocery industry supermarkets who who were sometimes feared for their rapacious treatments of suppliers, both big and small, farmers, you you name it, even big multinational corporations supplying them.

33:26 And there is now a grocery adjudicator at the CMA who oversees the relationships of 13 named supermarkets with all of their suppliers. So it it will no doubt be a good thing for all suppliers of tech platforms that this regulation is heading our way soon. Thank you. So next question is about AI and what opportunities and threats that presents to Bloomsbury. So, Nigel, are you happy to pick that one up? Sure. No problem. The AI is an interesting one. Of course, most of us had never heard of ChatsGPT before February.

34:19 I think it was only started a year ago last November and upgraded in February, and and now people, talk of nothing else. So, for publishers as opposed to humanity as a whole, it represents quite an opportunity. There are lots of things that generative AI can do in the work processes that we follow as publishers such as writing blurbs for jackets and advanced information sheets for marketing purposes and all kinds of things. So the the skill the art for us as an industry will be to to be able to benefit from those good things whilst not being damaged by the bad things. And the bad thing in particular that we are concerned about is if, AI is allowed to train to use their euphemism for scanning a book and ingesting it and using it as part of what provides the answer to a question.

35:34 I'm sure most of you have tried this and you could tell it to write a history of your company in Shakespearean iambic pentameters, and it would duly oblige. So it is remarkable. It's still also, as you know, unreliable due to these things called hallucinations where 98 of an answer will be factual and 2% will be a wild hallucination of something totally wrong and and away from that field. Does this represents a commercial threat to BLOOMSBURY? We we think not, but we'll have to see. The the reason we don't think so is that the books we produce are not generic information.

36:31 I think those are threatened, but we produce books by famous in their field, authors, famous philosophers, architects, theologians, you name it, on the academic side and students and researchers and academics themselves want that book by that author who has a unique take on the issue concerned. Similarly, in the general side of the business, if you've seen a lot of publicity on television about Tom Carriage's barbecue book, You don't just want generic information about barbecuing.

37:20 You want Tom Carriage on barbecuing. And similarly, with our novels, I imagine AI can produce a credible fantasy novel. But if you're a fan of Sarah J Maas and you're following the unique world she's created in three different series, you don't wanna read any old fantasy novel. You want to read Sarah J Maas. So I think the fact that from its origins, BLOOMSBURY has taken the quality high ground of seeking to publish works of excellence in originality, that will, in the end, be what protects us from the robots because people will be seeking the authority of of our very famous brand name authors even if that's in a a small field as well as a big field.

38:16 Thank you. Thank you, Nigel. And I think we've got final question here, which is the timeline and and future Sarah j Maas book releases, which are obviously very important to us. So her next title, which is the third in her Crescent City series, comes out on the 01/30/2024, so that will fall into this financial year. And thereafter, we have six further contracted titles. So continuing this series and starting a new series as well, but we don't have we haven't released dates for those yet. You'll you'll you'll hear as soon as we we have those confirmed. And on that note, Jake, we'll we'll hand back to you. Thank you very much, everyone, for these excellent and very wide ranging questions.

39:06 Penny, Nigel, thank you very much indeed for being so generous of your time there and addressing all of those questions that came in from investors this afternoon. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended just for you to review to then add any additional responses, of course, where it's appropriate to do so, and we'll publish all those responses out on the platform. But, Nigel, perhaps before really just looking to redirect those on the call to provide you their feedback, which I know is particularly important to yourself and the company, If I could please just ask you for a few closing comments just to wrap up with, that'd be great. Yes. Thank you very much indeed, Jake. Well, I I think I should emphasize that in the in the months of September and October and the first week or so of November, we've seen a continuation of the good momentum that that we had achieved in the period being reported on.

40:03 So we're we're really pleased that, if you like, not only has nothing gone wrong, but that the the momentum is quite robust. And we're only as good as the individual books that we publish, and it's been so good to see number of those that we've prepared campaigns for for sometimes up to two years before releasing them just in the last six weeks or so. And it's good to see them working well. I mean, of course, we we are still living in very difficult times, and many people are suffering from the the ravages of inflation on their household budgets.

40:53 So we remain fortunate that not through any great acts of genius of our own, but that our product is very cheap. An average book might be £6.99 for a paperback. And compared to other items of household expenditure, because we're cheap, we're probably not one of the first to get cut back on because we're not gonna make a big difference to somebody if we are cut back on. I think the second and and and final closing remark I would make is is about another bit of good fortune for being a book publisher based in in Britain or America, which is the English language.

41:48 And the spread of the English language continues. It's really become the software with which the world much of the world chooses to communicate even where it's two people for whom English is not their mother tongue, they will use English as the thing they have in common to speak to each other. And and that can be very important in some areas such as air traffic control where English was, I believe, made the international language with air traffic control in the nineteen fifties. So this has a big impact on our our book sales that we can sell books in English in considerable quantities in in China and other countries in Asia, a growing market in India where there are more English speakers than in Britain and America combined.

42:51 So this is a kind of gift in a way because we have such a a wide ready market for our books. So on that note, I will close, by thanking you all very much for coming to this call. It's very good to speak to you and to tell you, the good news about our first half and and the good news about our strategy really which has worked and has been more than ten years in the making to create this balanced portfolio portfolios, balance between the two halves of the year and balanced between the two very different markets of academia versus the high street.

43:44 And that that really has been one of the great secrets of Bloomsbury. Thank you all very much indeed. Over and out. Nigel, Penny, that's great. And thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can really 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 would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.