How To Understand Hachette Livre

Transcription

1 Hachette Livre INVESTOR DAY PARIS FEBRUARY 2, 2004

2 Table of contents Hachette Livre profile Competitive position on the world book market Outline description of our relevant markets Distinctive features of Hachette Livre s business portfolio Hachette Livre : our international span of activities The French speaking world as our homebase A major inroad in the worlwide international markets : partworks A prominent and growing presence on the English speaking market The attainment of a leading position on Spanish speaking markets Key features of competitive and financial performance and outlook Historical financial performance Competitive position : summary Perspectives of profit improvement 2 Hachette Livre : development perspectives Up-to-date portfolio diagnosis Maintaining the momentum on the strategic road

3 Hachette Livre profile Competitive position on the world book market Hodder Headline Cornelsen The sixth world Consumer book publisher Westermann 207 Klett-Gruppe 217 Taylor & Francis Langenscheidt * Blackwell Publishing 262 Wolters Kluwer 300 Mondadori 331 Santillana Time Warner Book Group Bonnier Books Editis John Wiley Proforma 2002 sales in million of the first 30 players in Consumer publishing (Trade / Education including College) RCS * 621 O.U.P. 647 Simon & Schuster * 725 Reader's Digest ** 900 Planeta * 902 Holtzbrinck 1045 De Agostini 1185 Houghton Mifflin 1196 Harper Collins 1228 Thomson Learning 1300 Hachette Livre Reed (Harcourt) Education Scholastic McGraw Hill Bertelsmann 4153 Pearson Sources : accounts of the 30 main worldwide players, proforma as of end of 2003 ; Hachette Livre : proforma after integration of Editis assets Turnover 2002 or 2003 (depending on fiscal year end) except : * 2001 data ** 2000 data

4 Hachette Livre profile Outline description of our relevant markets Book publishing : a highly segmented market Book publishing Markets relevant for Hachette Livre Consumer Professional Trade 63% Education 24% Prof./ Scient. / Techn. 13% Literature / Fiction - Non Fiction Illustrated books Reference & Partworks «K-12» Primary / Secondary College / University 4 Sources : Germany (Börsenblatt 10/07/03), France (SNE 2002), Spain (FGEE 2002), USA (Association of American Publishers), UK (Book Facts 2001).

5 Hachette Livre profile Outline description of our relevant markets Developed markets have recently proven to be sources of growth (USA, UK, France etc.) In developed markets growth is sourced from : cycles in governmental reforms (education) rebound expected in 2004 in Spain, in 2005 in France, in in the US / UK changes in the object «book» depending on its use Partworks : +40% in France in 2002 changes in topics covered, depending on sociological trends Mind Body Spirit : +10,2% in 2002 in the UK Children s paperbacks : +8% in 2002 in France lifestyle changes : 35 hours etc (how-to books) technological developments related to editorial contents : digital contents and services (education) 5 Sources : Booksales Yearbook 2003, panel IPSOS, internal data

6 Hachette Livre profile Outline description of our relevant markets Emerging markets : significant reservoirs for growth China, Russia, Central Europe, Latin America... The book as the basic educational tool The book as the first entertainment and cultural medium Russia Population : 144 m inhab. Market size : 700 m Production : titles (+59% ) Total print run : 591 m copies % of title production % of print run Education 31% 40% Scient. Books 21% 2% Literature 16% 23% Children s 6% 12% China Population : 1289 m inhab. Market size : 6,4 bn (+8,5% ) Production : titles Total print run : 6,31 bn copies Languages & Linguistics 6% Social & human Sciences 22% Title production : breakdown Literature 10% Art books 8% School Textbooks 23% Children's Books 6% Other 2% STM 23% Latin America Mexico Argentina Brazil Total Population (in m inhab.) Schoolbooks 40% 21% 45% 37% College / Acad. 20% 10% 19% 17% Trade 28% 50% 20% 30% ELT 8% 7% 9% 8% Other 4% 12% 7% 8% TOTAL in value, in US$ m 6 Sources : LH , LH , The Bookseller

7 Hachette Livre profile Outline description of our relevant markets Zoom on the French book market Behind the apparent stability (CAGR : +2,6%) Market value : 2,4 bn, 374 million units in 2002 far ahead of the music market : 1,3 bn, 171 million units the different market segments are highly volatile Strong growth disparities between the segments. Within each segment, fluctuating annual growth rate Existing growth potential 10% 5% CAGR ,4% 5,0% 3,8% 7,5% 9,9% 4,9% 2,3% 2,6% Education (including Dictionaries) Dictionaries Children s books Literature Art books 0% -5% -10% -1,1% Encyclopaedias (door to door) Partworks Practical / Travel guides (excl. maps and atlases) Other (incl. cartoons) -15% Total market 7-20% Sources : SNE (publishers net sales), SNEP (publishers sales) -20,7%

8 Hachette Livre profile Outline description of our relevant markets The British book market : regular and strong growth Annual growth of +3.1% in domestic consumer market to 2 bn Difficult time for the educational publishers in Export sales represent approx. 35% of global book sales, due to the general practice of co-edition (and despite an unfavourable exchange rate) and to the size of English speaking markets. Sale of international rights in order to amortise creation and development costs. This model has guaranteed the success of the most prestigious Englishlanguage reference co-edition publishers : Dorling Kindersley, Octopus, Phaidon, Thames & Hudson Domestic consumer market in m (retail + direct sales) Breakdown of Publishers turnover (2002) Export 35% Domestic 65% Source: Book Sales Yearbook 2003 ; The Bookseller, 28 March 2003 «Book Exports stay Buoyant»

9 Hachette Livre profile Outline description of our relevant markets The Spanish book market : moderate growth underpinned by Education and Export Domestic book market (in value) In million 3,000 2,500 2,000 1,500 1, ,362 Public price 2,431 2,529 2,607 2, Other publishing segments Education market The growth engine in the overall Spanish book market is the education segment, posting an annual growth ( ) of +7,4%. The 10% annual growth rate ( ) for export sales reflects the spread of the Spanish language. 9 Source: FGEE, FEDECALI.

10 Hachette Livre profile Distinctive features of Hachette Livre s business portfolio The winning business model of Hachette Livre Hachette Livre is one of the few multi-lingual / multi-specialist publishers in the world «Consumer» (Trade and Education) market, successfully smoothing the economic cycles of its different editorial segments, through a wide portfolio approach. Its editorial diversity, as well as its ability to manage it efficiently, represents : the best guarantee for stability, for the Group and its shareholders the best asset to grow more than market average by targeting dynamic segments (children s books, paperbacks, partworks, illustrated books) This requires the company s ability to simultaneously manage multiple time cycles; This competitive advantage is an integral part of the company s structure as a decentralised federation of publishers. The know-how required to manage a complex system balancing 4 segments (education, literature, illustrated, partworks) and high-performing distribution facilities have proven to be key to the Group s success in France and the UK ; this business model can be replicated tomorrow in Spain and, beyond, on other language zones. 10

11 Hachette Livre profile Distinctive features of Hachette Livre s business portfolio Strategic position : Ireland U.K. diversified presence Quebec Hachette Partworks Orion Netherlands Octopus France Belgium Germany Poland Mexico Mexique Columbia Venezuela Brazil LATIN AMERIcA Portugal Spain Salvat Anaya Bruno Larousse Dunod Dalloz A. Colin Hatier Hachette Hachette Collections Switzerland Austria Italy Japan Chili Morocco Algeria Argentina Senegal Malaisia Partworks Trade Education Reference Spec. / Prof. Ivory Coast Togo / Benin Gabon Cameroun Australia 11 South Africa Madagascar New Zealand

12 Hachette Livre profile Distinctive features of Hachette Livre s business portfolio Strong position resulting from the strategy implemented since 1992 Continued growth of the publishing segments in France, then abroad, have offset the decline in door-to-door sales. Turnover en m Turnover in m Door-to-door Publishing (incl. Partworks) Total (Before integration of Editis assets) Publishing 189 Total 142 Door-to-door Index on basis 100 in Recovery & strategic repositioning Growth and internationalisation strategy 12 Contribution of international sales to turnover : 21% 21% 25% 32% 35% 35% 42% Source: internal data

13 Hachette Livre : our international span of activities The French speaking world as our homebase 13 A fully integrated business model addressing the whole value chain Autonomy of publishers promoting internal competition and fostering editorial creativity Qualitative author sourcing, leading to the control of rights portfolio also supplying paperback publishing and multiple media licensing opportunities Maximum retention of value through self distribution and paperback Longstanding prestigious, award-winning and best-selling publishing houses Powerful brands with strong mutual emulation Fayard, Grasset, Stock, Calmann-Lévy, Livre de Poche Covering a large range of French and international literature titles Novels, essays, biographies, history, human sciences, documents Recent trends Impact of digitalisation Literature : Fiction / Non-fiction management of digital rights, production in digital format International cross-fertilisation UK - France Orion-J.C. Lattès (Rankin, Binchy), Fayard (Rolling Stones, worldwide rights with Orion). Source: panel IPSOS in value excl. Cartoons Literature 33% 7% 4% 10% 12% 15% 19% 2001 Others Flammarion Gallimard Albin Michel France Loisirs Hachette Livre Editis Source: panel Sofres Paperbacks 21% 13% 16% 23% 27% Others Flammarion Gallimard Editis Hachette Livre 2002 Source: panel IPSOS

14 Hachette Livre : our international span of activities The French speaking world as our homebase Education : the company s historical core business Hachette Livre is the #1 educational publisher in France Two distinct entities at Hachette : Hachette Education (1826) and Groupe Alexandre Hatier (1880) Imprints Hachette, Hatier, Didier, Foucher (vocational education) Well-known brands : Bled, Bescherelle, Littré, Gaffiot... Key positions on the supplemental market (Passeport, Annabac...) A cyclical market subject to governmental policies : entry into a challenging period for French educational publishers related to the slower-paced curriculum reforms and their reduced impact Rebound expected as from 2005 Education lies in the heart of future developments Education is a core Governmental policy issue and parental concern and, as such, it is a high potential market long term Multiple public initiatives currently promote the integration of new technologies in the classroom Education 16% Others 37% Editis 47% Hachette Livre 2002 Source: internal data 14 Despite the difficult educational environment, Hachette Livre has been able to gain market share and improve its profitability.

15 Hachette Livre : our international span of activities The French speaking world as our homebase Cover the whole range of illustrated books from «useful» to «entertaining» practical guides and how-to books, travel guides, art books, cartoons Hachette Pratique, Marabout, Hachette Tourisme, Le Routard, Le Chêne, Hazan Brands : Le Guide Bleu, Le Guide Voir, Le Guide Bleu Evasion,... Children s books : Illustrated books Well-known series based on Hachette s rich historical back-list and key characters (Astérix, Franklin, Babar ), complemented by children s reference works and non fiction Livre de Poche Jeunesse, Bibliothèques Rose & Verte Disney-Hachette Edition : joint-venture with Disney Based on its strengths, in 2002 Hachette Livre displays growth rates far above market average Well-known brands, high profitability, access to the UK publishers back-list Practical and Travel guides Children s Books Art Books Market average +4,5% +5% Incl. Paperbacks : +8% +3% 15 Hachette Livre Practical guides Marabout : +38% H. Pratique : +22% Total : +30% Source: Livres Hebdo , panel IPSOS, internal data +20% Travel guides H. Tourisme : +10% #1 #1 H. Jeunesse : +21% incl. Paperbacks H. Jeunesse Roman : +42% #1 Le Chêne: +20% Hazan : +9% Total : +18% #2

16 Hachette Livre : our international span of activities The French speaking world as our homebase Through the integration of Editis assets, Hachette Livre will get access to new major segments in 2004 Dictionaries / Reference : Larousse The New Dictionary of the French Language was first published in 1856 Today Larousse is #1 in France on the monolingual as well as bilingual dictionaries market 80% of French homes own a copy of Le Petit Larousse The Larousse brand enjoys an international reputation More than 50% of sales made in Spanish language A household brand across Latin America Current development projects in Poland, Italy, Brazil Higher Education / Specialist publishing : Dalloz, Dunod, Armand Colin Well positioned on the French market Leading brands on each market segment that they cover High profitability Controlled implementation of digitalisation and approach of professional markets

17 Hachette Livre : our international span of activities The French speaking world as our homebase Salesforce 2nd level bookshops 9% Direct sales (mail order - incl. clubs) 19% Supermarkets 16% Door to door Internet 3% 2% Other 10% 1st level bookshops 18% Specialised chains 23% In an environment where supermarkets and chains play an increasing role, French independent booksellers still remain the 2nd largest sales channel in bookselling. Commercial B2B website «hachettediffusion.fr» is now fully operational High capillarity access to POS not visited by the salesforce Increased autonomy of independent booksellers online ordering 5,200 clients subscribing (35% of clients) The ordering rate, connection number and turnover have doubled in Source: retailer panels

18 Hachette Livre : our international span of activities The French speaking world as our homebase Distribution Completion of an organisational scheme by flow : SERVICE PROVIDER OUTSOURCING COMPANY MAUREPAS CENTRAL WAREHOUSE Subscription flows Reorders supermarkets 2 REGIONAL WAREHOUSES Central warehousing Reorders 10 CASH & CARRY CENTERS RETURN CENTER Hachette Livre owns distribution platforms in the 3 key French speaking countries Belgium, Switzerland and Canada. In 2003 Hachette Livre s distribution processed over 200 million units. 18 Regular and complementary third party publishers contribute for approx. one third of turnover.

19 Hachette Livre : our international span of activities The French speaking world as our homebase Partworks : one of the key growth drivers in the last years 19 Business model based on customer retention and international cloning : Marketing-driven selection of collectible topics, heavy upfront launching investment to generate long term customer loyalty Careful cost management to maximise margin on follow-up issues Ability to replicate proven success on successive foreign markets Rapid growth of the partworks business #2 on the French market with 20% market share Subsidiaries : Hachette Collections, Hachette Partworks & Hachette Fascicoli, Hachette Collections Japan, Hachette Kolecja Continued internationalisation (Spain, Latin America, UK, Italy, Japan) through organic growth or alliances Key success factors : ability to create new products supporting internationalisation / customisation marketing know-how Huge growth reservoirs still available to build on Hachette Livre is #3 worldwide High business potentials in Italy (#1 market), the UK, Japan Partworks (France) 2% 5% 11% 11% 12% 13% 21% 26% 2002 Others Marshall Cavendish Eaglemoss Altaya Del Prado Fabbri-Orbi (RCS) Hachette Livre Atlas (De Agostini) Source: internal data

20 Hachette Livre : our international span of activities A major inroad in the worldwide international markets : partworks Ireland U.K. Internationalisation in partworks ( ) Quebec Belgium Netherlands Germany Poland Mexico Mexique France Switzerland Austria LATIN AMERICA Portugal Italy Spain Brazil Japan Malaisia? Australia 20 Spanish-speaking French-speaking & others English-speaking Exploratory attempt South Africa New Zealand

21 Hachette Livre : our international span of activities A prominent and growing presence on the English speaking market Hachette Livre is the #5 Trade publisher in the UK behind Bertelsmann (Random House), Pearson (Penguin / DK), News Corp. (HarperCollins) and WHSmith (Hodder Headline) Hachette Livre achieved this position partly through Orion s organic growth uninterrupted since 1998 partly through Octopus acquisition in 2001 leader in adult illustrated books and practical guides customisation of approach depending on local markets features : co-edition, direct sale, packaging, etc. > 50% of turnover outside the UK, mainly in co-edition 6.0% 4.0% 2.0% % of retail market share 3.3% 0.1 % 3.2 % 6.1% 1.0 % 0.1 % 5.0 % Octopus Watts Orion With 3 autonomous publishing houses and a performing distribution center, Hachette Livre can now apply its business model to its UK infrastructure. 0.0% Source: Book Sales Yearbook 2003, p. 39, «General Retail Market 2002 : top 20 publishers» 21

22 Hachette Livre : our international span of activities The attainment of a leading position on Spanish speaking markets Spain : with Anaya, Hachette Livre becomes the #1 educational publisher Anaya s integration into Hachette Livre is an ideal fit to accelerate the Group s transformation into a major Trade and Education publisher in the Spanish speaking markets. 25% 20% 15% Spanish education market (2002) Public price, 625 m 23% 22% 22% 19% 20% 19% Bruño Based on its existing brands : Salvat, Bruño, Edelsa 10% 5% 0% 3% Bruño Santillana Anaya Santa Maria Santillana Anaya Santa Maria Before After Sources : FGEE, Fedecali, company web sites, press articles 22

23 Key features of competitive and financial performance and outlook Historical financial performance PROFITABILITY GROWTH In m Op. profit Op. margin 9,6% 7,7% 7,0% 91 5,8% 6,0% 6,3% ,0% 10,0% 8,0% 6,0% 4,0% 699 Turnover (in M ) ,0% ,0% Source : internal data

24 Key features of competitive and financial performance and outlook Historical financial performance CASH FLOW Free cash flow * (in M ) ,0 40,0 30,0 20,0 10,0 0,0 ECONOMIC VALUE ADDED in M 40,8 23,6 14,2 11,5 7,1 2, Turnover (in M ) Turnover (in M ) * excluding dividends paid to Lagardère Groupe Source : internal data

25 Key features of competitive and financial performance and outlook Competitive position : summary EDUCATION TRADE PARTWORKS (International) UK Reed Wolters Kluwer Pearson Bertelsmann Pearson Harpers Collins WH Smith 5 Hachette Livre SPANISH SPEAKING MARKETS Santillana Hachette Livre Santa Maria Planeta Random House Mondadori Santillana DeAgostini RCS Libri (Fabbri) Hachette Livre FRENCH SPEAKING MARKETS Hachette Livre Editis Belin Hachette Livre Editis Gallimard 25

26 Key features of competitive and financial performance and outlook Competitive position : summary SWOT analysis STRENGTHS Diversified presence on the Consumer market (multi-lingual / multi-specialist) and agile segment management Fully integrated, replicable business model Formidable brand collection with high international appeal, under the unique Hachette flagship Qualitative portfolio of famous and high-profile authors, with authoritative minds Fact-driven marketing approach State-of-the-art distribution facilities with in-depth bookselling market reach and strong appeal to third party publishers Demonstrated long term commitment of Lagardère Group to Book Publishing OPPORTUNITIES Short term : integration of Editis assets Completion of the Hachette Livre fully integrated business model in major presence countries International cross-fertilisation in Literature and Illustrated books Organic growth on the partworks market Additional growth potential in emerging markets Technological developments in Education (digital contents and services) WEAKNESSES Headroom for extra growth on the French speaking markets appears limited. Perception of Hachette Livre s position and role in its environment is often skewed by a «schizophrenic» approach (too small though too large) Absence of English language educational activity (ELT) to spearhead Hachette Livre s international growth in developing countries Pace and completion of the Hachette Livre development is very dependant on (sometimes unpredictable) acquisition opportunities. THREATS Unstability of the French home market since the VUP sale may have turned a sanctuary into an international battlefield? (still to be proven) Worldwide concentration in Book publishing may raise the stakes for scale-driven investments and / or future acquisitions Transfering from a challenger to a leader position may involve some cultural adjustments, to ensure that the impetus is maintained. 26

27 Key features of competitive and financial performance and outlook Perspectives of profit improvement Although excellent, profitability can still outperform its track record The Group anticipates benefits from : the synergetic effect of Editis assets integration the expected rebound of educational markets in France and Spain within 2 to 5 years the additional leverage on both organic growth and margins due to the completion of the Group s deployment in France, Spain and the UK the external growth, still at the core of the company s growth strategy and that will be primarily seeked on its existing markets. This should enable Hachette Livre to keep growing its profitability within the next 3-4 years. 27

28 Hachette Livre : development perspectives Up-to-date portfolio diagnosis Among the largest world publishers, Hachette Livre is one of the best positioned to take its development further Hachette Livre demonstrated its ability to optimise the management of its brand portfolio, including in periods of slow market growth. Hachette Livre fundamentals kept improving in and now place the Group in the best position to face the changes in its environment, even when fast or unexpected : new structure of the French market, less stable since the VUP sale emerging opportunities for international growth within 3 to 5 years. Beyond current success, Hachette Livre intends to foster its offensive development strategy on key non French speaking markets. 28 In the course of this process, the single move of Editis assets integration enables Hachette Livre to climb to the #6 worldwide position on the Consumer market.

29 Hachette Livre : development perspectives Maintaining the momentum on the strategic road Beyond this first step, the strategy proposed by Hachette Livre for is articulated around the following directions : To expand in education on the English speaking market To extend the illustrated book publishers network around Octopus and in Spain, without excluding other language markets... To accelerate the partworks international development To invest actively in digital education To continue the international growth in worldwide Trade publishing To organise our involvement and presence in selected emerging markets with high growth potential 29