Despite the difficult economic conditions, Wiley performed well in fiscal year 2009, delivering revenue and EPS growth on a currency neutral basis. Our Scientific, Technical, Medical, and Scholarly (STMS) and Higher Education (HE) businesses recorded strong growth on a currency neutral basis. Our Professional/Trade (P/T) business has been affected by the weak retail environment, especially in the U.S.
In a tough year, all three of our businesses published and sold more content than was imaginable just a few short years ago. People all over the world need the information we publish, for living, learning, and working. We are serving our customers better and reaching more of them by publishing “must-have” content; taking advantage of digital opportunities; and investing in enduring relationships with authors, partners, and colleagues.
We are pleased to report that fiscal year 2009 revenue grew 3.4% on a currency neutral basis, the result of strong growth in our STMS and HE businesses. Including the negative $120 million effect of foreign exchange, full-year revenue declined 3.7% to $1.6 billion.
Adjusted earnings per share (EPS) for fiscal year 2009 rose 22.0% on a currency neutral basis and excluding a $0.31 per share unusual tax benefit reported in the prior year. The increase reflected top-line results, reduced incentive compensation accruals, lower interest expense, and prudent cost management. EPS on a U.S. GAAP basis fell 13.7% due to unfavorable foreign exchange of $0.50 per share and the aforementioned unusual tax benefit in fiscal year 2008.
The Company continues to generate strong free cash flow, increasing to $164 million, up 40% from $117 million in fiscal year 2008. Increased cash from operating activities principally drove the year-on-year improvement. Cash collection delays reduced fiscal year 2009 cash flow by approximately $30 million. The backlog in cash collections, a residual effect of the STMS journal billing delays in the second half of fiscal year 2009, will be substantially cleared in the first quarter of fiscal year 2010.
The theme of this year’s Annual Report — Solutions — showcases the ways in which Wiley is anticipating and responding to market challenges and opportunities. Wiley’s engagement with authors, customers, and partners is evolving as we leverage our content and enabling technology across business and geographic boundaries. These initiatives highlight our vision, strategies, and capabilities as we navigate through the current economic climate while investing in a prosperous future and fulfilling our responsibilities as a respected corporate citizen.
Free cash flow was used to reduce debt, pay dividends, repurchase shares, and invest in acquisitions. In fiscal year 2009, the Company repurchased approximately one million shares for $35 million, paid dividends of $30 million, made several acquisitions totaling $24 million, and reduced long term debt by $20 million. Year-end net debt (debt minus cash) was $720 million.
The largest of our three core businesses, STMS serves the world’s research and scholarly communities and is the largest publisher globally for professional and scholarly societies. STMS programs encompass journals, books, major reference works, databases, and laboratory manuals, offered in print and electronically. Through our Wiley InterScience online platform, we provide our customers access to a broad range of content, including approximately 1,500 journals; 7,600 online books; 100 major reference works; 10,000 laboratory protocols; and 1,000 digital backfiles dating back as far as 200 years.
On a currency neutral basis, STMS revenue advanced 9% (including a $17 million accounting adjustment related to the Blackwell acquisition that reduced revenue in fiscal year 2008), a result of higher journal subscription renewals, new business, and increased global rights income. Partially offsetting the results were lower sales from backfiles, reprints, and custom publishing. Society relationships continued to strengthen and grow, with 32 new journals signed in fiscal year 2009, 87 journal contracts renewed or extended, and only nine journal contracts not renewed. Including $97 million of unfavorable foreign exchange, revenue declined 1% to $969 million.
Direct contribution to profit for the fiscal year grew 4% from the prior year to $399 million. On a currency neutral basis, contribution to profit advanced 14%. The year-over-year increase reflects top-line results, including the aforementioned acquisition-related accounting adjustment, partially offset by higher editorial costs due to new journals and performance-related compensation.
Wiley achieved an important milestone in fiscal year 2009 by migrating online journal content, customers, and access licenses from Blackwell’s Synergy platform to Wiley InterScience. The migration included approximately 29,000 customers, more than two million licenses, and nearly two million journal articles.
The next step in the evolution of Wiley’s online service will be the launch of a new platform with an innovative architecture that will allow for flexibility and future change, as well as a fresh user interface with many built-in features such as better browsing, vastly improved home pages for all types of products, subject pages, and ways to discover more from the abstract page (the destination page for users who come from search engines). Our objective is to launch a robust site in the coming year with all content available, providing a smooth transition and a positive user experience for customers.
A fiscal year 2009 acquisition brought to STMS the Arnold statistics book program from Hodder Education, which includes more than 50 titles, complements areas of strength in Wiley’s statistics program, and provides growth opportunities.
Our P/T business serves professionals and consumers alike, producing books, subscription content, and information services, in all media. Our portfolio of global brands includes For Dummies, Frommer’s, Betty Crocker, Pillsbury, Better Homes and Gardens, Family Circle, CliffsNotes, Webster’s New World, J.K. Lasser, Jossey-Bass, Pfeiffer, and Sybex. Subject areas include business, technology, architecture, cooking, psychology, education, travel, health, religion, consumer reference, and general interest.
Global P/T revenue declined 10% to $413 million in fiscal year 2009, excluding unfavorable foreign exchange, compared to the prior year, or 13% including unfavorable foreign exchange. The decline is attributed to the ongoing weak retail environment, particularly in the U.S.
Direct contribution to profit was $95 million compared to $137 million for fiscal year 2008, reflecting the revenue shortfall, additional inventory obsolescence and royalty advance provisions, and a $2 million bad-debt recovery in the prior year. The decline was partially mitigated by prudent expense management, principally in advertising, sales, and marketing, and lower accrued incentive compensation. Direct contribution to profit declined 31%, or 27% excluding unfavorable foreign exchange, from the prior year.
P/T is extending brands online and forging important partnerships to drive growth. The Company became the official publisher of the Graduate Management Admission Test® (GMAT®) study guides, began to publish Better Homes and Gardens books, renewed our agreement with General Mills to publish Betty Crocker and Pillsbury cookbooks, and signed an agreement with the Vancouver Olympic Organizing Committee to become the official publication partner of the 2010 Winter Olympic and Paralympic Games in Vancouver/Whistler.
Wiley’s publication of Restoring Financial Stability: How to Repair a Failed System, in partnership with New York University’s Stern School of Business, is a case study in collaboration and the breadth of our market reach. An October conversation between President and CEO Will Pesce, a Stern graduate and a member of Stern’s Board of Overseers, and the school’s Dean, Thomas F. Cooley, led to the March launch of this collection of 18 papers by 33 Stern faculty members on current economic conditions. A special issue of the journal Financial Markets, Institutions & Instruments, co-owned by Wiley and Stern, carried the executive summaries of the papers, adding academic readership to the professional and trade audience reached by the book. Stern based an MBA course on the book’s contents, and we are planning to make that course material available to academic institutions around the world. Colleagues from all three of Wiley’s global businesses collaborated to publish and disseminate these important publications quickly and efficiently.
Wiley HE’s mission is to help teachers teach and students learn. HE serves teachers; undergraduate, graduate, and advanced placement students; secondary school students in Australia; and lifelong learners. We publish educational materials in all media, notably through WileyPLUS, our integrated online suite of teaching and learning resources. Wiley publishes materials in the sciences, engineering, mathematics, business/accounting, geography, computer science, statistics, education, psychology, and modern languages.
Fiscal year 2009 global HE revenue grew 6% to $230 million excluding unfavorable foreign exchange or 1% including the currency effect. Strong growth occurred in every region and in nearly every subject category. Contributing to the results were a strong frontlist, higher-than-expected revenue from textbooks acquired during the year, solid growth from the Microsoft collaboration agreement, and the continued success of WileyPLUS. The continuing growth of WileyPLUS is indicated by several key metrics: global full-year billings reflected annual growth of 38%, digital-only sales grew 70%, and the validation rate increased to 63%.
Direct contribution to profit decreased 10% to $62 million, or 3% on a currency neutral basis, from prior year. The decrease reflected prior year contingency planning, which had significantly curtailed expenditures in fiscal year 2008; higher accrued performance compensation; and increased spending to support a large frontlist.
Throughout the fiscal year, HE continued to build momentum through acquisitions, alliances, and innovative initiatives. Wiley acquired a list of business and modern language textbooks from Cengage Learning, and mathematics and statistics textbooks from Key College Publishing. Notable alliances include an agreement with Amazon to offer select Wiley eTextbooks for sale through the Kindle DX. Wiley Custom Select — an easy-to-use, Web-based custom textbook system that allows instructors to customize course materials to fit their pedagogical needs and have the results delivered in very affordable print or eBook format — successfully launched during the fourth quarter.
Wiley’s successful transformation into a global organization has been supported by a well-executed Business Intelligence (BI) strategy. By building BI capabilities using global systems and data standards, along with Web-based planning and forecasting models, the Company has gained clarity and insight into the operations of its three core businesses, increasing its “analytical IQ” in a way that has helped us navigate the turbulence of the current economic environment. As a leading publisher in information science and technology, we have tapped our own reservoir of knowledge to create this capacity.
In late March, we announced the appointment of Stephen M. Smith as Executive Vice President and Chief Operating Officer, effective May 1, 2009. Steve is now responsible for the overall direction and leadership of Wiley’s global publishing businesses. He has relocated to Wiley’s global headquarters in Hoboken from Chichester, U.K., where he was based as Senior Vice President, International Development, with responsibility for Europe, the Middle East, Africa, Asia, and Australia.
Steve is a highly influential member of Wiley’s Leadership Team and a major contributor to the Company’s success. His leadership skills and extensive experience in Asia and Europe, where he has been actively involved in all of Wiley’s core businesses, will be critically important as Wiley evolves as a global enterprise. We value and appreciate his ability to lead and influence across organizational and geographic boundaries. Steve was actively engaged in the Blackwell acquisition and integration and is currently leading Wiley’s Corporate Citizenship initiative. He has an impressive record of recruiting and developing talent at Wiley. This appointment is tangible evidence of our commitment to the development of the next generation of leadership at Wiley.
Steve joined Wiley in 1992 as Vice President, Wiley Asia. In 1995, he was promoted to the new position of Vice President, International Development. He became Senior Vice President, International Development, in 1996, when he assumed corporate responsibility for Wiley Australia. In May 2000, Wiley’s P/T business in Europe was added to his responsibilities. In 2006, Steve became Chief Operating Officer of Wiley’s U.K. business; he was appointed Senior Vice President, Wiley Europe, in 2007, while continuing his role in Asia and Australia.
We are cautiously optimistic about our prospects for fiscal year 2010, despite continued uncertainty regarding the effect of the economy on our global businesses. In fiscal year 2010, projected operating performance improvements in each of our businesses and the positive effect of debt reduction will be partially offset by a higher tax rate and the effect of performance-based incentive compensation plans. On a currency neutral basis, we are currently projecting EPS growth of approximately 10% for fiscal year 2010. While we anticipate revenue growth on a currency neutral basis, top-line results will be highly dependent on economic conditions around the world.
As we navigate through challenging market conditions, we remain keenly focused on our noble mission of promoting knowledge and understanding around the world. We are providing more access to more content by more people than ever before in our Company’s history. Our collection of businesses — STMS, P/T, and HE — is unique in the industry. Our brands are highly regarded by customers, authors, and partners. A significant portion of our revenue is recurring and generated online. We are serving our customers through multiple channels of distribution, and we are doing it globally. Most important, Wiley’s culture, built on a solid foundation of ethics and integrity, is as strong as ever.
None of Wiley’s accomplishments would be possible without the dedication and professionalism of our colleagues around the world. We are grateful for their contributions to Wiley’s success.
William J. Pesce
Peter Booth Wiley
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