ANALYSIS

STM publishing provides a safe haven in choppy waters

At the height of the dotcom boom in the late 1990s, many information companies and publishers benefited from strong sales and very healthy profits. In the last few years, the information industry in general has been faced with a considerably weaker market, and profit margins have suffered.

However, IRN's regular analysis of the financials of leading UK STM information providers and publishers suggests that most of these companies have performed much better than the industry as a whole. Scientific publishers and vendors continue to post double-digit profit margins, even though the industry as a whole is only experiencing low single-digit margins overall. STM information sales are also healthy and employment levels are high in contrast to the wider information industry, which is seeing falling sales and shedding employees. And a glance at half-year results for 2004 from the major global players also suggests that 2004 will be another good year.

While users may view these high profits with some concern, given the tight budgets in many sectors and price rises for STM information, the good news is that many companies are utilising these healthy profits to invest in new product developments and new technologies.

Charting sales trends
An analysis of reported sales figures from UK companies for the last five years shows that STM information companies and publishers have continued to register sales growth throughout the period, although the level of growth has fallen in the last two years. In the business information sector, in contrast, overall sales have been falling in the last two years after strong annual rises in the previous two years (see table 1 below).

In both sectors, sales growth has been achieved through a combination of organic growth and acquisitions but merger and acquisition activity has had a greater impact on the STM sector in the last two years. The sales decline in the business information sector has been partly due to some disposals of non-core businesses as well as falling advertising revenues. The latter, in particular, has had little influence on the performance of the STM sector.

Profits remain high
However, there is a more significant trend than sales in an industry which is struggling to maintain margins overall. This is the general level of pre-tax profit margin reported by the UK STM information companies and publishers analysed.

Throughout the period 1999 to 2003, these companies have maintained double-digit profit margins and, in 2003, average margins rose to 15.4 per cent from 12.9 per cent in 2002. In contrast, average margins for companies in the business information sector have failed to reach double-digit levels in any of the last five years. In 2002, the business information sector registered an overall loss of 3.8 per cent with margins recovering after two poor years in 2003 to 4.2 per cent (see table 2 above).

People power
The number of employees working in the UK STM information companies surveyed has increased year-on-year from 1999 to 2003. In 2003, personnel numbers increased by 5 per cent, although a significant proportion of this increase can be attributed to the integration into larger companies of additional employees from acquired companies. In the business information sector, employee numbers have been falling in the last two years: there have been fewer acquisitions than in the STM information sector and the widespread internal restructuring of operations has reduced employee levels considerably (see table 3 above).

International trends
The trends evident in the UK are largely mirrored in the performances of the major global STM players. For example, market leader Elsevier's global STM sales and operating profits in the last five years have grown at an even faster rate than the UK businesses analysed here. Annual operating profit margins for this global STM company have consistently been around 33 to 35 per cent over the five years.

Half-year 2004 results from the major global STM information players also point to another promising year in 2004. Results from Elsevier, Thomson, Wolters Kluwer, and Wiley suggest that full-year sales growth for their combined global STM businesses will be of the order of 5 to 6 per cent, with operating margins expected to increase by an estimated 5 per cent over the same period. Wolters Kluwer and Thomson have both reported notable increases in margins in the first half of 2004. Elsevier has registered a small fall but its publication programme is weighted towards the second half of the year so revenues and margins are expected to improve for the full year 2004.

David Mort is director of IRN Research, a UK-based market research and information company specialising in the analysis of European information and content markets. IRN's Company & Market Analysis Service (CMA) uses data from the Plum and Aquila company information databases of its sister company, ICC Information, to monitor the financial accounts of almost 60 UK-based information companies and publishers. Of these, 21 are involved in scientific publishing or STM databases and online services. The other companies operate in the business information sector. Companies included in IRN's STM sector coverage include Elsevier, Thomson Scientific, Wiley, Blackwell Publishing, Ovid, and Taylor & Francis (up to 2003). The smallest company analysed is Portland Press with an annual turnover of £3.2m. Smaller publishers, and many society publishers which do not file detailed financial accounts, are excluded from the analysis. For general details of CMA, or the specific information companies covered by the service, contact: dmort@irn-research.com

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