Volatility in international markets and a shift in library purchasing patterns were two components in making 2015 a “very challenging” year for Oxford University Press, c.e.o. Nigel Portwood has said.
This week OUP reported 1.7% headline growth for the year to end March 2016, with turnover at £781m—up from £767m in the previous 12-month period. It’s a rise, but a long way off the robust levels of two years ago (2013/14 saw turnover jump 7%). Meanwhile, profits dropped 8% from £111m to £102m.
OUP has also confirmed to The Bookseller that around 140 redundancies have been made at the company globally in recent monthss, spanning the company’s Academic, Education and ELT divisions, with 51 of the roles cut coming from its UK workforce.
Portwood, though, is not feeling gloomy, citing “real pockets of incredible performance that cheer us up during the year and make us feel optimistic for the future”, as well as a recovery in some softer parts of the market, ELT and Academic, towards the end of the financial year.
Of the difficulties that marked 2015, he singled out library purchasing of academic books. “All our competitors say they struggled with the academic book sector and of course we are overweight on that because we are a university press, and that’s a big part of our business. It’s happening globally and in the US in particular— the US is our biggest market—so we really felt it last year. We’ve got used to flat [growth numbers], or flat plus one. We generally don’t feel it because we grow our market share, but last year even that wasn’t enough for us.”
There were two key factors: “One is a shift towards more spending on journals, and we are on the other side of that too: our journals business grew 8% last year, so we were quite happy with that shift. It’s a see-saw. Then— and we had known it would happen but hadn’t felt the effects—the way in which librarians purchase academic material is demand-driven, rather than supply-driven [i.e. academics and students ask for the books they want and that dictates what librarians buy], and there’s a little bit of material coming out of the supply chain as a result. There’s an adjustment taking place. Long-term, we think [demand- driven acquisition] is good. It makes people think harder about what it is they require and we like to think OUP would benefit from that approach, but we think there is a period of adjustment.”
Also tough were market conditions in Brazil, as well as the Middle East, Poland and South Africa. But OUP’s Asia business performed very well, seeing double-digit growth in China, India and Pakistan. Meanwhile its education division also had a strong year, fuelled by demand for new materials catering for curriculum reform in both the UK and in Spain.
Of the recent job losses, Portwood said: “You’ve seen reports of our competitor Pearson taking out 10% of its workforce . . . We have been doing nothing like that. Some markets have turned down across the world—South Africa is a case in point, the market has halved in the past two years and we don’t think it’s going to grow—and there are some parts of our business where our costs are out of line with market opportunity. We have taken action in respect of that, but it has been targeted and proportionate.”
The posts have largely gone in sales and marketing functions for the regional businesses. But roles are being added in other areas which are doing well, Portwood says: in journals, in the Asia business, in the UK schools business. ELT is being reshaped, with some jobs going but new technology roles being added “so we can produce those materials with services added to them in a way we couldn’t before, like assessment or teacher development.”
Overall, the company headcount will remain flat this year.
Portwood explained the drop in profits was “a complicated story”. “Our underlying business grew its profits last year, but we have a £5m loss in foreign exchange. We have a lot of cost here and sales overseas, and we got hit on the Euro last year.” Meanwhile, OUP invested in tertiary online course company Epigeum and online dictionary venture Bab.la, companies still “in investment mode”, as well as partnering with AQA in setting up a new international exam board (Oxford International AQA Examinations) and upping investment on technology through edtech accelerator Emerge Education.
The percentage of OUP’s sales generated by digital still seems relatively low, at 22% of its total (though up 8% on last year, and accounting for more than half of its sales in the academic division). Portwood said OUP is “very strict” in the way it calculates truly digital sales—“I think some of our competitors, particularly those who are publicly listed, have a different definition of it . . . if you applied other people’s definitions, you could probably double [our number]”— and that OUP’s weighting towards emerging markets, less digitally evolved, depresses the figure.
“We are quite happy with [our figure], we think it totally reflects the opportunity and the market.”
But OUP has to “try to think cleverly” to punch above its weight and compete with much larger businesses, as it does with Pearson in education and ELT, or Reed and Wiley in academic. One such instance is its partnership with Cognizant, the technology solutions company recently announced to be taking over some of OUP’s tech functions, a move that may result in a number of job losses. “It is us saying there are some pieces of technology we need to really own ourselves, because it is important for our innovation—the front-end, customer-facing technology—but there are other bits that we don’t need to have in-house in order to be competitively strong.
“We need the lowest cost base and access to the best skills. An organisation of our size would struggle to achieve that if we tried to do everything in-house. We use partnerships in a clever way to try to promote our scale and make us look bigger than we really are,” said Portwood.
What is top of Cognizant’s to-do list? “We’ve said we want it to help us simplify our estate even further, because we think simplification will lead to efficiency and help us adapt more quickly. I’ve struggled with technology all my career, [in situations] where you spend a lot of time building something—it’s great, it works—then you find you’ve got to update it, improve it, and that’s when the real problems start because it’s expensive and hard to keep up with market developments. You’ve got to rip it up and start again.
“So I’m as focused on simplification as I am on cost reduction: simpler infrastructure, interoperability, single sign-on, digital asset management. If we’re all using common platforms, it’s that much easier.”
“Cognizant sees the value of this relationship, not in helping us do our plumbing, but in helping us innovate faster. I’m looking for it to bring its capability and ideas, and together with our understanding of the market we operate in, we can come up with better future products.”
OUP has also been engaging internationally on edtech: in the past year, Portwood flew his whole senior team out to India with Emerge, meeting entrepreneurs from the “vibrant” Indian edtech sector, and to Hong Kong on the same remit in the China and South-East Asia market.
When it comes to the effect of Brexit on his business, Portwood sounded unruffled. “We don’t know what it will mean. In the meantime, it is business as usual for us and our customers. We are still hiring staff from the EU and sending people to [work elsewhere in] the EU, and it’s important at this stage that nobody loses their nerve.”
He added: “Long-term, Europe is an important market for us but it’s not most of our market: 80% of our turnover is outside of the EU, excluding the UK . . . The EU has not been a source of tremendous growth for us in the past few years, but it continues to be an important market, and we very much hope we can continue to trade successfully in it. My view is we should be able to.
“The worst case for us is [going it alone as a member of ] the World Trade Organisation, but educational materials don’t have a tariff, so it may be a bit more cumbersome for us in bureaucratic terms, there may be a few duties to pay, but it shouldn’t fundamentally affect our ability to supply that market.
“In the longer-term, Asia is more important, and South America. We have a portfolio of sectors and geographies and the great thing about a portfolio is the pluses can often outweigh the minuses.”