Feb 2, 2004 ... Distinctive features of Hachette Livre's business portfolio. ➔ Hachette Livre : our
..... Well-known brands : Bled, Bescherelle, Littré, Gaffiot.
Hachette Livre
INVESTOR DAY PARIS FEBRUARY 2, 2004
Table of contents Ô Hachette Livre profile n n n
Competitive position on the world book market Outline description of our relevant markets Distinctive features of Hachette Livre’s business portfolio
Ô Hachette Livre : our international span of activities n n n n
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
Ô Key features of competitive and financial performance and outlook n n n
Historical financial performance Competitive position : summary Perspectives of profit improvement
Ô Hachette Livre : development perspectives n 2
n
Up-to-date portfolio diagnosis Maintaining the momentum on the strategic road
Hachette Livre profile Competitive position on the world book market Hodder Headline
189
Cornelsen
190
The sixth world Consumer book publisher
Westermann
207
Klett-Gruppe
217
Langenscheidt *
234 260
Blackwell Publishing
262
Taylor & Francis
300
Wolters Kluwer Mondadori
331
Santillana
347
Proforma 2002 sales in € million of the first 30 players in Consumer publishing (Trade / Education including College)
423
Time Warner Book Group
498
Bonnier Books
565
Editis
577
John Wiley
621
RCS *
647
O.U.P.
725
Simon & Schuster * Reader's Digest **
900
Planeta *
902 1045
Holtzbrinck De Agostini
1185
Houghton Mifflin
1196 1228
Harper Collins
1300
Thomson Learning
1310
Hachette Livre Reed (Harcourt) Education
1579 2074
Scholastic
2494
McGraw Hill
4153
Bertelsmann
4397
Pearson 0 3
500
1000
1500
2000
2500
3000
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
3500
4000
4500
Hachette Livre profile Outline description of our relevant markets
Book publishing : a highly segmented market Book publishing
Markets relevant for Hachette Livre
Consumer
Trade 63%
Literature / Fiction - Non Fiction
4
Illustrated books
Professional
Education 24%
Reference & Partworks
Sources : Germany (Börsenblatt 10/07/03), France (SNE 2002), Spain (FGEE 2002), USA (Association of American Publishers), UK (Book Facts 2001).
« K-12 » Primary / Secondary
Prof./ Scient. / Techn. 13%
College / University
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 : Ô cycles in governmental reforms (education) n
rebound expected in 2004 in Spain, in 2005 in France, in 2005-06 in the US / UK
Ô changes in the object « book » depending on its use n
Partworks : +40% in France in 2002
Ô changes in topics covered, depending on sociological trends n
Mind Body Spirit : +10,2% in 2002 in the UK
n
Children’s paperbacks : +8% in 2002 in France
Ô lifestyle changes : 35 hours etc (how-to books) Ô technological developments related to editorial contents : digital contents and services (education) 5 Sources : Booksales Yearbook 2003, panel IPSOS, www.publishers.org, internal data
Hachette Livre profile Outline description of our relevant markets
Emerging markets : significant reservoirs for growth Ô China, Russia, Central Europe, Latin America...
Population Population :: 144 144 m m inhab. inhab.
Population Population :: 1289 1289 m m inhab. inhab.
Market Market size size :: €700 €700 m m Production : 72.000 titles Production : 72.000 titles
Market Market size size :: €6,4 €6,4 bn bn
(+59% (+59% 1997-2002) 1997-2002)
Total Total print print run run :: 591 591 m m copies copies % of title production 31%
40%
Scient. Books
21%
2%
Literature
Children ’s
16%
6%
(+8,5% (+8,5%2001-02) 2001-02)
Production Production :: 154.000 154.000 titles titles Total print run : 6,31 bn copies Total print run : 6,31 bn copies
% of print run
Education
23%
Latin Latin America America
Title production : breakdown
Languages & Linguistics 6%
Literature Art books Children's 10% 8% Books 6% Other 2%
Social & human Sciences 22%
12%
6 Sources : LH 10.10.03, www.ined.fr, LH 21.06.02, The Bookseller 12.10.01
STM 23% School Textbooks 23%
Total
China China
Brazil
Russia Russia
Argentina
n
The book as the basic educational tool The book as the first entertainment and cultural medium
Mexico
n
Population (in m inhab.)
105
37
176
318
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
500
520
940
1960
in value, in US$ m
Hachette Livre profile Outline description of our relevant markets
Zoom on the French book market Ô Behind the apparent stability (CAGR 1998-2002 : +2,6%) n n
Market value : € 2,4 bn, 374 million units in 2002 far ahead of the music market : € 1,3 bn, 171 million units
Ô the different market segments are highly volatile n n
Strong growth disparities between the segments. Within each segment, fluctuating annual growth rate
Existing growth potential Education (including Dictionaries)
CAGR 1998-02 9,9% 10%
Dictionaries
7,5% 5,4% 5,0%
5%
4,9%
3,8%
2,3% 2,6%
Encyclopaedias (door to door)
0%
-1,1%
Partworks
-5%
Practical / Travel guides (excl. maps and atlases)
-10%
Other (incl. cartoons) Total market
-15% -20%
-20,7%
7 Sources : SNE (publishers net sales), SNEP (publishers sales)
Children’s books Literature Art books
Hachette Livre profile Outline description of our relevant markets
The British book market : regular and strong growth Ô Annual growth 1998-2002 of +3.1% in domestic consumer market to £2 bn n
Difficult time for the educational publishers in 2003-04
Ô 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. n n
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. Breakdown of Publishers turnover (2002)
Domestic consumer market in £m (retail + direct sales)
2250
1970
2000
1980
Export 35%
1870 1750
1760
1998
1999
1750
1500
1250 8
2000
2001
2002
Source: Book Sales Yearbook 2003 ; The Bookseller, 28 March 2003 « Book Exports stay Buoyant »
Domestic 65%
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) Public price 3,000
In € million
2,500
2,362
2,431
2,529
2,607
2,675
2,000 1,500 1,000 500 0 1998
1999
2000
Other publishing segments Education market
9 Source: FGEE, FEDECALI.
2001
2002
Ô The growth engine in the overall Spanish book market is the education segment, posting an annual growth (1998-02) of +7,4%. Ô The 10% annual growth rate (1995-02) for export sales reflects the spread of the Spanish language.
Hachette Livre profile Distinctive features of Hachette Livre’s business portfolio
The winning business model of Hachette Livre Ô 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. Ô Its editorial diversity, as well as its ability to manage it efficiently, represents : the best guarantee for stability, for the Group and its shareholders n the best asset to grow more than market average by targeting dynamic segments (children’s books, paperbacks, partworks, illustrated books) n This requires the company’s ability to simultaneously manage multiple time cycles; n This competitive advantage is an integral part of the company’s structure as a decentralised federation of publishers. n
Ô 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
Hachette Livre profile Distinctive features of Hachette Livre’s business portfolio
Strategic position :
diversified presence
U.K.
Ireland
Hachette Partworks Orion
Quebec
Netherlands
Germany
Belgium
Octopus
Poland
France
Larousse
Mexico
Spain
Mexique
Venezuela Columbia
Dunod Dalloz A. Colin
Portugal
Hatier
Switzerland
Austria
Hachette Hachette Collections
Salvat
LATIN AMERIcA
Italy
Anaya Bruno
Brazil
Japan Chili
Morocco Algeria
Argentina
Partworks Trade Education Reference Spec. / Prof.
Malaisia
Senegal Ivory Coast
Togo / Benin
Cameroun Gabon
Australia Madagascar
11
South Africa
New Zealand
Hachette Livre profile Distinctive features of Hachette Livre’s business portfolio
Strong position resulting from the strategy implemented since 1992 Ô Continued growth of the publishing segments in France, then abroad, have offset the decline in door-to-door sales. 900
Door-to-door
Publishing (incl. Partworks)
Total 822
714
Turnover en € m
830
768
800 700
950
(Before integration of Editis assets)
669
662
659
699
638
846
200
Publishing 189
180
140
600
Total 142
500
120 100
400 80 300
60
200
Door-to-door 14
100 0
40 20 0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Recovery & strategic repositioning Growth and internationalisation strategy 12
160
Contribution of international sales to turnover :
21%
21%
25%
32%
Source: internal data
35%
35%
42%
Index on basis 100 in 1992
Turnover in € m
Hachette Livre : our international span of activities The French speaking world as our homebase
Literature : Fiction / Non-fiction
Literature
Ô A fully integrated business model addressing the whole value chain Autonomy of publishers promoting internal competition and fostering editorial creativity n Qualitative author sourcing, leading to the control of rights portfolio
Others
33% Flammarion
n
l
n
also supplying paperback publishing and multiple media licensing opportunities
Maximum retention of value through self distribution and paperback
Ô Longstanding prestigious, award-winning and best-selling publishing houses n
Powerful brands with strong mutual emulation l
n
Fayard, Grasset, Stock, Calmann-Lévy, Livre de Poche
15% Hachette Livre
19%
Source: panel Sofres
Paperbacks
l
Orion-J.C. Lattès (Rankin, Binchy), Fayard (Rolling Stones, worldwide rights with Orion).
13 Source: panel IPSOS in value excl. Cartoons
Others
Flammarion
16% Gallimard
23% Editis
management of digital rights, production in digital format
International cross-fertilisation UK - France
Editis
2001
13%
l
Albin Michel
France Loisirs
Novels, essays, biographies, history, human sciences, documents…
Impact of digitalisation
Gallimard
12%
21%
Ô Recent trends
n
10%
Covering a large range of French and international literature titles l
n
4% 7%
27% Hachette Livre
2002 Source: panel IPSOS
Hachette Livre : our international span of activities The French speaking world as our homebase
Education : the company’s historical core business Ô Hachette Livre is the #1 educational publisher in France n
Two distinct entities at Hachette : Hachette Education (1826) and Groupe Alexandre Hatier (1880) l l
n
Imprints Hachette, Hatier, Didier, Foucher (vocational education) Well-known brands : Bled, Bescherelle, Littré, Gaffiot...
Key positions on the supplemental market (Passeport, Annabac...)
Education 16%
37%
Others
Editis
Ô A cyclical market subject to governmental policies 2002-04 : entry into a challenging period for French educational publishers related to the slower-paced curriculum reforms and their reduced impact n Rebound expected as from 2005 n
Ô 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 n Multiple public initiatives currently promote the integration of new technologies in the classroom n
14
Ô Despite the difficult educational environment, Hachette Livre has been able to gain market share and improve its profitability.
47%
Hachette Livre
2002 Source: internal data
Hachette Livre : our international span of activities The French speaking world as our homebase
Illustrated books Ô Cover the whole range of illustrated books from « useful » to « entertaining » practical guides and how-to books, travel guides, art books, cartoons n Hachette Pratique, Marabout, Hachette Tourisme, Le Routard, Le Chêne, Hazan n Brands : Le Guide Bleu, Le Guide Voir, Le Guide Bleu Evasion,... n
Ô Children’s 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 n Livre de Poche Jeunesse, Bibliothèques Rose & Verte n Disney-Hachette Edition : joint-venture with Disney n
Ô Based on its strengths, in 2002 Hachette Livre displays growth rates far above market average n
Well-known brands, high profitability, access to the UK publishers’ back-list Practical and Travel guides
Market average
+5%
+4,5% Practical guides
Hachette Livre
Children’s Books
Travel guides
Marabout : +38% H. Pratique : +22%
Total : +30%
Incl. Paperbacks : +8%
+20% 15 Source: Livres Hebdo 21.03.03, panel IPSOS, internal data
+3%
H. Jeunesse : +21%
H. Tourisme : +10%
#1
Art Books
#1
incl. Paperbacks H. Jeunesse Roman : +42%
#1
Le Chêne: +20% Hazan : +9%
Total : +18%
#2
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 Ô Dictionaries / Reference : Larousse n n n n
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 l A household brand across Latin America l Current development projects in Poland, Italy, Brazil... l
Ô Higher Education / Specialist publishing : Dalloz, Dunod, Armand Colin n n n n 16
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
Hachette Livre : our international span of activities The French speaking world as our homebase
Salesforce Direct sales (mail order incl. clubs) 19%
Door to door Internet Other 3% 2%
10%
2nd level bookshops 9%
Supermarkets 16%
Specialised chains 23%
1st level bookshops 18%
Ô In an environment where supermarkets and chains play an increasing role, French independent booksellers still remain the 2nd largest sales channel in bookselling. Ô Commercial B2B website « hachettediffusion.fr » is now fully operational n
High capillarity l
n
Increased autonomy of independent booksellers l
n n 17 Source: retailer panels
access to POS not visited by the salesforce
online ordering
5,200 clients subscribing (35% of clients) The ordering rate, connection number and turnover have doubled in 2003
Hachette Livre : our international span of activities The French speaking world as our homebase
Distribution Ô 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
Ô Hachette Livre owns distribution platforms in the 3 key French speaking countries Belgium, Switzerland and Canada. Ô In 2003 Hachette Livre’s distribution processed over 200 million units. 18
Ô Regular and complementary third party publishers contribute for approx. one third of turnover.
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 Ô 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 n Careful cost management to maximise margin on follow-up issues n Ability to replicate proven success on successive foreign markets n
Ô Rapid growth of the partworks business #2 on the French market with 20% market share n Subsidiaries : Hachette Collections, Hachette Partworks & Hachette Fascicoli, Hachette Collections Japan, Hachette Kolecja n Continued internationalisation (Spain, Latin America, UK, Italy, Japan) through organic growth or alliances n Key success factors : n
l l
ability to create new products supporting internationalisation / customisation marketing know-how
Ô Huge growth reservoirs still available to build on Hachette Livre is #3 worldwide n High business potentials in Italy (#1 market), the UK, Japan n 19
Partworks (France) 5% 2% 11% 11% 12% 13%
Others Marshall Cavendish Eaglemoss Altaya Del Prado
21% Fabbri-Orbi (RCS)
26%
2002
Hachette Livre Atlas (De Agostini)
Source: internal data
Hachette Livre : our international span of activities A major inroad in the worldwide international markets : partworks
Ireland
U.K.
Internationalisation in partworks (1996-2003) Netherlands
Quebec Belgium
Germany Poland
Switzerland
Mexico
Austria
Mexique
France LATIN AMERICA
Portugal
Italy Spain
Brazil
Japan
Malaisia ?
Australia
20
Spanish-speaking French-speaking & others English-speaking Exploratory attempt
South Africa
New Zealand
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)
Ô Hachette Livre achieved this position n
partly through Orion’s organic growth l
n
uninterrupted since 1998
partly through Octopus acquisition in 2001 leader in adult illustrated books and practical guides l customisation of approach depending on local markets features : co-edition, direct sale, packaging, etc. l > 50% of turnover outside the UK, mainly in co-edition l
Ô With 3 autonomous publishing houses and a performing distribution center, Hachette Livre can now apply its business model to its UK infrastructure. 21
% of retail market share 6.0%
6.1% 1.0 % 0.1 % 5.0 %
4.0%
3.3% 2.0%
0.0%
Octopus Watts Orion
0.1 % 3.2 %
1998
2002
Source: Book Sales Yearbook 2003, p. 39, « General Retail Market 2002 : top 20 publishers »
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
19% 20%
20%
19%
o uñ Br
22%
0%
3% o uñ r B
Before
Santa Maria
5%
Anaya
10%
Santillana
15%
Santa Maria
Based on its existing brands : Salvat, Bruño, Edelsa
23%
22%
Anaya
n
25%
Santillana
Ô 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.
Spanish education market (2002) Public price, €625 m
After
Sources : FGEE, Fedecali, company web sites, press articles
22
Key features of competitive and financial performance and outlook Historical financial performance
PROFITABILITY
Op. profit
GROWTH
Op. margin
Turnover (in M €)
12,0% 120
9,6%
10,0%
91
8,0%
100
7,7% 7,0%
In € m
80
5,8%
6,0%
6,3%
60
6,0%
65
40
41
46
950
52
699
768
822
830
846
2000
2001
58 4,0%
20
2,0%
0
0,0% 1997
23 Source : internal data
1998
1999
2000
2001
2002
1997
1998
1999
2002
Key features of competitive and financial performance and outlook Historical financial performance
CASH FLOW
ECONOMIC VALUE ADDED
Free cash flow * (in M €)
in M€
67
50,0
40,8 40,0
53
30,0
42
39
37
23,6
38 20,0
14,2
11,5
7,1
10,0
2,3 0,0 1997
1998
1999
2000
2001
2002
1 997
Turnover (in M €)
1 998
1 999
2 000
2 001
Turnover (in M €) 950
699
24
768
822
830
* excluding dividends paid to Lagardère Groupe Source : internal data
2 002
950
846 699
768
822
830
846
Key features of competitive and financial performance and outlook Competitive position : summary
EDUCATION
UK
SPANISH SPEAKING MARKETS
FRENCH SPEAKING MARKETS
25
1 2 3
1 2 3
1 2 3
Reed Wolters Kluwer Pearson
Santillana Hachette Livre Santa Maria
Hachette Livre Editis Belin
TRADE
1 2 3 4 5 1 2 3
1 2 3
PARTWORKS (International)
Bertelsmann Pearson Harpers Collins WH Smith Hachette Livre
Planeta Random House Mondadori Santillana
Hachette Livre Editis Gallimard
1 2 3
DeAgostini RCS Libri (Fabbri) Hachette Livre
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 n Fully integrated, replicable business model n Formidable brand collection with high international appeal, under the unique Hachette flagship n Qualitative portfolio of famous and high-profile authors, with authoritative minds n Fact-driven marketing approach n State-of-the-art distribution facilities with in-depth bookselling market reach and strong appeal to third party publishers n Demonstrated long term commitment of Lagardère Group to Book Publishing n
WEAKNESSES Headroom for extra growth on the French speaking markets appears limited. n
Perception of Hachette Livre’s position and role in its environment is often skewed by a « schizophrenic » approach (too small though too large) n
Absence of English language educational activity (ELT) to spearhead Hachette Livre’s international growth in developing countries n
Pace and completion of the Hachette Livre development is very dependant on (sometimes unpredictable) acquisition opportunities. n
OPPORTUNITIES n
Short term : integration of Editis assets
Completion of the Hachette Livre fully integrated business model in major presence countries n
n
International cross-fertilisation in Literature and Illustrated books
n
n
n
Organic growth on the partworks market
n
Additional growth potential in emerging markets
Technological developments in Education (digital contents and services) n
26
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. n
Key features of competitive and financial performance and outlook Perspectives of profit improvement
Although excellent, profitability can still outperform its track record
Ô The Group anticipates benefits from : n n n n
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.
Ô This should enable Hachette Livre to keep growing its profitability within the next 3-4 years.
27
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 Ô Hachette Livre demonstrated its ability to optimise the management of its brand portfolio, including in periods of slow market growth. Ô Hachette Livre fundamentals kept improving in 2002-03 and now place the Group in the best position to face the changes in its environment, even when fast or unexpected : n n
new structure of the French market, less stable since the VUP sale emerging opportunities for international growth within 3 to 5 years.
Ô Beyond current success, Hachette Livre intends to foster its offensive development strategy on key non French speaking markets. Ô 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. 28
Hachette Livre : development perspectives Maintaining the momentum on the strategic road
Ô Beyond this first step, the strategy proposed by Hachette Livre for 20042008 is articulated around the following directions : n n n n n n
29
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