John Wiley & Sons Inc (WLY) 2005 Q4 法說會逐字稿

Good day, everyone.

Welcome to the John Wiley & Sons conference call.

Today's conference is being recorded.

Before introducing Will Pesce, President and Chief Executive Officer, I would like to remind you that this discussion will contain forward-looking statements.

You should not rely on such statements, as actual results may differ materially and are subject to factors that are discussed in detail in the Company's 10-K and 10-Q filings with the SEC.

The Company does not undertake any obligation to update or revise forward-looking statements to reflect subsequent events or circumstances.

With that, Mr. Pesce, I will turn things over to you.

Good morning, and welcome to Wiley's fourth quarter and year-end conference call.

I'm with Ellis Cousens, Executive Vice President, Chief Financial and Operations Officer.

I will begin with an overview of Wiley's performance, then Ellis and I will respond to your questions.

Each year presents unique challenges and opportunities.

Fiscal year 2005 was characterized by volatile conditions in the Higher Education market.

As a result, Wiley's Higher Education business experienced a down year.

STM had a strong year as journals and books and print and online exceeded our expectations.

Professional/Trade reported modest topline growth, but operating income increased significantly.

Wiley's businesses in Europe and Asia performed very well, while results in Canada and Australia were somewhat disappointing.

Shared services made significant contributions to Wiley's success.

Our finance team devoted considerable resources to Sarbanes-Oxley 404 compliance and met the challenge.

So what was the outcome of the collaborative efforts of our colleagues around the world?

Wiley reported a record performance in revenue, EPS and cash flow in fiscal year 2005.

Revenue of 974 million puts Wiley within striking distance of the $1 billion milestone.

In fiscal year 2005, revenue was up 6% over prior year, or 4% excluding the positive effect of currency.

EPS advanced 8% over prior year.

Free cash flow of 152 million exceeded prior year by 23%.

An outstanding performance after a record breaking year in fiscal year 2004.

Fiscal year 2005 operating income of 141 million, increased 9% over prior year.

Operating income as a percent of revenue increased to 14.5% from 14% last year.

Operating expenses of 497 million increased 5%, were up only 3% over prior year, excluding foreign exchange effects.

Auditing and consulting compliance costs associated with the certification of internal controls as required by Sarbanes-Oxley Section 404 compliance added approximately 1% or $3 million to the year-on-year increase in expenses.

EPS of $1.47 excludes certain tax adjustments, which are explained in detail in the press release that was issued earlier today.

For the fourth quarter, revenue increased 4% over prior year.

EPS increased by 25%, excluding the aforementioned tax adjustments.

The Company generated a record level of cash flow in fiscal year 2005, far surpassing the previous high.

Whatever the appropriate words are to describe a positive perfect storm, we experienced it with our cash and working capital management.

We continue to exhibit the expertise and financial discipline required to generate and deploy cash effectively, that we know is highly valued by our investors.

The Company acquired nearly 3 million shares of Class A common stock under an authorized buyback program.

And an all-in average price of $32.94 per share.

We acquired publishing assets in several transactions aggregating to approximately $23 million.

And we paid 18 million in cash dividends to shareholders.

At year-end, cash and short-term investments were nearly $100 million, up 21% over prior year.

Inventories of $83 million were essentially flat with prior year.

Receivables of 138 million increased as a result of the revenue growth and foreign exchange.

Day sales outstanding decreased from 95 to 93 days.

Product development assets were essentially flat, while property and equipment decreased as depreciation more than offset increases in technology-related costs.

Intangible assets increased as a result of acquisitions that were consummated primarily in the second half of fiscal year 2005.

The May 30th addition of Barrons included an article about Wiley, which was described by a long-term Wiley shareholder as one of the most favorable articles in Barrons that he has ever read about any company.

I certainly urge you to read it.

I would like to provide some additional information about Wiley's core businesses.

Professional/Trade revenue of 350 million in fiscal year 2005 increased 3% over prior year, as a result of organic growth in key publishing categories.

Particularly the "For Dummies" books, professional culinary program and "Webster's New World Dictionary."

The psychology and education programs also exhibit solid year-on-year growth.

High-end technology titles showed improvement for the year, while sales of consumer technology books remain sluggish.

Other publishing revenue, principally generated through brand licensing, the sale of rights in online advertising was up 22% for the year, improved sales returns also contributed to the favorable results for Professional/Trade.

Professional/Trade's direct contribution to profit of 102 million exceeded prior year by 9%, reflecting favorable product mix, lower inventory and advanced provisions, composition savings, and prudent expense management.

Operating expenses were only 1% higher than prior year.

Fourth quarter revenue was up slightly over the previous year's strong finish.

During the quarter, several books benefited from widespread media attention, Young and Simon icon, Steve Jobs the greatest second act in the history of business, received extensive media coverage around the world.

Two titles were published with television series tie-ins, while another was the subject of a three-part series on national public radio.

Which generated positive coverage in "The Wall Street Journal", "Time Magazine" and the "San Francisco Chronicle."

Another Wiley book was featured on two "Today Show" segments.

Frommers.com, Dummies.com and CliffsNotes.com all had a strong quarter and year in terms of site traffic, subscriber counts and sales.

Professional/Trade had a banner year with custom publishing and special sales.

Of special note, our customized "For Dummies" publications, which are in great demand by corporations and organizations around the world that want to leverage the power of this well-known brand.

U.S.

STM revenue of 191 million in fiscal year 2005 was 7% higher than prior year.

Electronic journals, news society publications, and nonsubscription revenue, such as reference books, journal back files and advertising sales, all contributed to the year-on-year growth.

STM's direct contribution of profit of 89 million was 3% higher than prior year, reflecting the combined effects of increased revenue and favorable product mix, partially offset by costs associated with new society journals.

Operating expenses were up 10% over prior year, due to investments in society journals and Wiley InterScience.

For the fourth quarter, revenue increased over prior year by 6%.

Globally, the STM business recorded strong growth, up approximately 9% for the full year.

Journals and books and print and online contributed to the year-on-year growth.

The revitalization of the global STM book business is well underway, as a result of new leadership, the reallocation of resources, and improved publishing, sales, and marketing.

The book program recorded its sixth consecutive quarter of robust growth resulting in an increase of 12% in fiscal year 2005.

The STM business is continuing its transformation at digital access.

We believe the research community and society at large or best served by the widest possible dissemination of information.

Wiley continues to make significant investments to add content and functionality, and facilitate greater accessibility and discoverability.

More and more customers gain access to this service through Google, and by taking advantage of alternate price programs, such as Pay-Per-View, and new customer-driven model for online books.

Reference linking improvements, new marketing initiatives and the addition of content, including new society journals and back file collections, also drove traffic.

As a result, usage during the fourth quarter increased 23% over the third quarter, and 56% over the previous year's fourth quarter.

The chemical abstract service cited an article in one of Wiley's journals as the most requested article in 2004 from all of their products and services.

Additionally, the January/February 2005 issue of ISI Science Watch listed five Wiley journals among the top 10 in three of 11 categories in the hottest journals of the millenium so far.

The Company announced an ambitious new program to digitize all its journal holdings dating back to the 1800s.

Wiley's digitization of legacy content is designed to improve the research pathway and ensure content discovery is as seamless and efficient as possible.

The completed back file collection will span two centuries of scientific research and comprise over 7.5 million pages.

One of the largest archives of its kind issued by a single publisher.

This initiative is scheduled for completion in 2007 in conjunction with Wiley's 200th anniversary.

Higher Education finished a challenging year with revenue of 151 million, which was 1% below prior year.

The disappointing results reflect industrywide price resistance among students, and continued softness in engineering, mathematics, and computer science.

Higher Education's direct contribution to profit of 38 million was below prior year by 8%, reflecting the topline results, investments in new products, services and business models, and inventory write-offs, partially offset by continuancy expense savings.

Revenue for the fourth quarter was $1 million below prior year.

Higher Education is reallocated human and financial resources to drive growth, additional resources are being added to accelerate growth in career colleges and custom publishing.

Initiatives to reduce the costs associated with the production of textbooks have been implemented, and additional investments are being made in new generation, lower price products and services, such as eGrade Plus, which has been well received in the states and abroad.

During the quarter, Higher Education introduced a strong front list for the new academic year.

Outside the states, more local adaptations of U.S. textbooks are being published primarily for markets in Asia and the Middle East.

The applied markets initiative, a collaborative effort between Wiley's Higher Education and Professional/Trade businesses, focuses on the career college market and it was recently launched.

Wiley's revenue of 269 million in fiscal year 2005 exceeded prior year by 13%, excluding currency effects, revenue increased 8%.

Journals, reference books, and advertising sales contributed to the growth.

Indigenous and imported professional and trade titles also performed well.

Direct contribution to profit of 86 million exceeded prior year by 16%, reflecting topline growth, and favorable product mix.

Fourth quarter revenue in Europe increased over prior year by 9%, or 6% excluding foreign currency effects.

Wiley's success in Europe was widespread, with nearly all business categories growing strongly.

Our companies in the U.K. and Germany exhibited solid year-on-year growth.

Particularly worth noting was a strong performances of the Cochran collection in evidence-based medicine, the success of the U.K. "For Dummies" program, and the robust performance of the STM book program.

The power of the "For Dummies" brand in Europe was evident throughout the year.

More than 1 million copies of "Wi-Fi For Dummies" which was custom published for Intel, were distributed to their customers throughout the U.K.

All visitors to the 2005 London book fair received a copy of the "London Book Fair Tips For Dummies."

Over 160,000 copies of "French History For Dummies" have been sold since its publication.

And in April, Wiley-VCH secured the German publishing rights for the "For Dummies" brand.

Wiley's fiscal year 2005 revenue in Asia, Australia and Canada was up a combined 10% to 109 million.

Or 6% excluding foreign currency effects.

Revenue growth in all regions contributed to the improvement, particularly Asia, which grew 11% for the year.

Operating income of 24 million was essentially flat with prior year, excluding foreign exchange effects, partly due to product mix.

Fourth quarter revenue increased 17% over prior year with strong growth in Canada and Asia.

Asia reported impressive growth particularly during the second half of the year.

STM books had an excellent year.

Journal revenue was robust in Asia and particularly in China.

And Professional/Trade revenue was up despite the challenging retail environment.

In Australia, the Higher Education and school businesses both had a good year due to the strength of local publishing.

Wiley Australia was one of the select group of companies to be awarded the Employer of Choice citation by the Federal Government's Equal Opportunity in the Workplace agency.

Earlier in the year, the Australian Campus Booksellers Association and the Australian Publisher's Association selected Wiley Australia as Publisher of the Year.

In Canada, Professional/Trade exceeded expectations, while Higher Education had a difficult year reflecting similar markets and conditions as in the United States.

Wiley's performance in fiscal year 2005 reflects the combined effects of our unique mix of core businesses, the resiliency of our highly regarded brands and must-have content, and our ability to adapt in change while executing our strategies to serve customers better.

Our record of accomplishment is largely due to the commitment, creativity, and integrity of an extraordinary team of colleagues around the world.

Based on our record results in fiscal year 2005, leading indicators and market conditions, we anticipate fiscal year 2006 revenue growth in the mid- to high-single digits, and EPS growth greater than that of revenue.

Excluding the aforementioned tax adjustments.

We usually do not provide specific guidance regarding free cash flow.

However, you should be aware that we do not anticipate reaching the record level of 152 million in fiscal year 2006.

It is highly unlikely we ill be able to match the level of improvement in accounts receivable collections that we made in the fourth quarter of fiscal year 2005.

In addition, we anticipate some growth in inventories, product development costs, and capital spending, after three years of essentially no increases in these areas.

That being stated, we remain confident that we will continue to generate healthy levels of free cash flow, while investing in Wiley's future.

With that as background, we welcome your questions and comments.

[OPERATOR INSTRUCTIONS] First up is Steven Wise at Mind Flow Capital.

Great.

Thank you very much.

Nice job, guys.

I love what I'm hearing.

A couple of questions.

A lot of your competitors over the past year have recently been implementing some new strategic initiatives to reduce their raw material costs for paper and print by establishing a better line of communication with their suppliers, and opening up a better line of collaboration to suppliers as well.

I'm interested if you can provide some color to us as to what you guys are doing to reduce your raw materials costs to help your bottom line by establishing a better line of communication with your suppliers as well.

Well, I think if you were -- this is Will responding.

I think if you were able to -- you would be free to do it, contact some of our vendors.

I believe what you would hear is that Wiley has had a terrific relationship, and I'm not only talking about people who we acquire paper and printing services from, but also come compositors, that we're a highly valued partner in that process.

Each and every year, we focus on ways of trying to deliver more product for less.

In fact, there has been some pressure in the last year on paper prices, yet we have been able to manage those costs, and maintain margins because we're finding more effective ways to work with our various vendors in that regard.

Over the long run, ultimately, in my opinion, one of the great opportunities to drive better margins will be the continued electronic dissemination of content.

So while we continue to exist in a print and electronic world, we will continue to have very healthy relationships with our vendors, to try to drive those costs down.

And I think the margins that you have seen over the years with our print product are an indication of that.

While we continue to digitize content, which I think over the long term, is the most robust strategy to control overall costs in terms of production and also delivering healthy margins.

I know you guys have been doing a lot better.

In terms of the cost factor, are you guys doing any type of cost modeling to justify allocations to certain vendor -- some of your vendors?

What we do is we manage pricing or paper purchasing according to -- well, we have a certain level of quality requirements in paper, but we have been shifting some of the nature -- some of the grade of paper that we purchased to sort of go after what is more readily in supply in the marketplace, that are priced better.

So we have done some shifting in terms of paper quality, we typically sort of look at paper and price -- buy paper more so on the spot market than longer term contracts.

That's continued to serve us well despite sort of a rising paper environment.

It allows us to be more reactive or responsive to opportunities in the marketplace.

So we have actually, and we do have sort of a couple of people who do continuous analysis of availability in the market globally and manage sort of paper purchasing globally.

What has been your supplier feed back to these type of news -- it sounds like you guys are really on the ball, what's been their feedback?

Have they been very responsive to your initiative?

They have thus far, yes.

Okay.

Congratulations on a great quarter, guys.

Continued success.

Thank you very much.

Next up is Brandon Dobell at Credit Suisse.

Good morning, guys.

Good morning.

Focusing on the Higher Ed space for a second.

As you look back the last year, can you kind of separate the impact in the business from two perspectives, one would be pricing, second would be your -- I guess your subject area of focus, or the areas where you're leveraged to in terms of degree programs, where to separate out the impact on your business from those two factors?

Brandon, this is Will.

If you're referring to pricing, I'm assuming the comment that I made about price value concerns by students and the overall price of textbooks, which as we all know is an industrywide concern, that is absolutely the vast majority of the issue that we confronted in the last fiscal year.

Having said that, we have a significant investment as you know in the so-called hardside disciplines of engineering and the sciences and mathematics.

And engineering in particular is an area that has been beyond the price value concerns that are evident in the market, has been hard hit because of enrollment declines in the United States.

And a couple years ago, we started the process of revising a strategy for that business, and we began to see some effect of that in the last fiscal year and we anticipate seeing more of it going forward.

And that is by focusing that program even more so on the larger enrollment course areas.

We're trying to introduce more technology solutions to that marketplace.

I should point out to you that outside the United States, enrollments in engineering, for example, are still strong, that this -- the issues of enrollments, not that it doesn't exist in other parts of the world, but it is a bigger issue in the states.

And I think the -- it is not a matter of people not being interested in the subject area or trying to gain access to it.

I think that particular market is more about the delivery, and I see us moving even more rapidly to electronic dissemination.

So it has been a bumpy road in engineering the last three years.

But we remain committed to it over the long haul, because we believe it is a worthwhile investment and we believe the solution is more electronic delivery.

So for the most part, it was market conditions.

And then you would add to that the fact that we have some of the mix things related to the hardside disciplines.

I also made reference in my remarks about the Higher Ed that we have been increasing our investments in some other course areas outside of the historical Wiley core, some of the social science areas on a very selective basis and that certainly has helped our performance and we will continue to invest in those.

We are not going to be -- we're not going to publish in every course area.

We don't feel that that is the right strategy for Wiley.

But opportunistically, we have been looking at areas where we can make investments.

Some of that will help us as well in these career colleges that I mentioned.

We've definitely put more resources in product development sales and marketing to reach the career college market even more effectively.

I made some reference to investments on the sales side to the Business Solutions Group, that our group of people that spends most of their time calling on career colleges.

So we see a number of things here that we've already begun to make investments for that are going to help fuel growth going forward.

Okay.

Very helpful.

As you look at the front list, you mentioned a pretty strong catalog this year.

Is that -- is your confidence in that driven by the broader offerings, or different products for career college, or are you seeing better responses from some of those core hard -- kind of hard lines or hardsides that you posted previously?

A point I would like to make about this that I believe, Brandon, is relevant to this question that you ask, is it is very interesting to me in analyzing our results in the Higher Education business for fiscal year '05, that when you look at our top 10 titles, the best sellers, and many of those are packages, not just print, but there is a textbook with related materials that go with it, our top 10 products actually performed reasonably close to our expectations.

And the reason I make that point is that I really don't think people are correct in assuming that the solution here, particularly in this intermediate time, this year, next year is to go 100% electronic.

An example I would use is our best-selling book is to Tortora's Anatomy and Physiology.

It is also one of our highest priced packages, it is also one of the most successful titles we published in fiscal year 2005.

So there is no one solution to this.

When I talk about a strong front list, it is because we know that there are particular areas that we publish in where we have franchise products and that students still want to gain access to those products, meaning including in their print form, it doesn't mean we don't have electronic components that go with it, and as long as the market need is there for those kinds of products, we're going to deliver it.

So one solution is, keep publishing that front list, where content matters, where the access to the print material matters, make it stronger by investing in technology.

Take some production value out of some of the other areas where students aren't as interested as maybe they once were in the illustrations and the photo research, and some of the visual materials that were in the textbook, take the cost out of that so that we can lower the prices of those books, and continue to migrate to an electronic delivery in those areas where students and professors have embraced the technology.

So there is no one simple silver bullet or solution to all of this.

But on the other hand, what I'm confident about is that we're making investments in a number of these initiatives very carefully, and I think very wisely to sustain long-term growth.

Okay.

It seems like you guys are doing the right thing there with the titles you have.

Shifting over to the Professional/Trade business.

Last year, or in the last 18 months, a lot of up and down in terms of how retailers behaved with shelf space and inventory and returns and all that kind of thing.

Have we seen some normalization there?

It looks like the revenue growth in the fourth quarter, obviously of the tough comp, was okay, but trying to get a sense for, have those guys started to act a little bit more normally versus what we have seen in the past year, or certainly the last holiday season in terms of inventories.

How they're allocating shelf space?

What they're asking of you guys from either a front list or a back list perspective?

Again, this is Will, Brandon.

The word normal is a --

It is an overstatement?

But let me say the things that, obviously from quarter to quarter, there is always some volatility in that.

Fortunately, as you know, Wiley, the type of publishing we do, we are not subjected to some of the wild swings that companies who do fiction publishing have to deal with.

So fortunately, we don't have that.

Fortunately, we have a back list that sells reasonably well.

Overall, we came in at year-on-year growth of 3%.

Would we is have liked to have seen that be a little bit better?

Absolutely.

Are we confident that we are going to be able to grow faster than that in '06?

Absolutely.

One of the things that we did experience toward the end of the year, first, is you're right, the comparables fourth quarter to fourth quarter were pretty tough for us, we had a really strong fourth quarter last year, and the fact that we pretty much held even there is a good indication to me.

Inventory management both by Wiley as a Company, and by our major accounts continues to improve.

There have been a number of initiatives in place to try to improve upon that.

We are also doing some things with print-on-demand that will help us in terms of delivery of product.

You noticed that our inventory levels have been essentially flat over the last three years.

And I think that is an indication that there is some efficiencies that we've been able to gain, and that our major accounts have helped us to gain.

I would like to continue to commend one of our major intermediaries that we work with, Amazon, where we continue to experience terrific growth and have a very collaborative relationship with, and they're experimenting with new approaches to the business.

And so overall, I would say it gets a bit bouncy and choppy from quarter to quarter, but overall, I think we're -- we had some good momentum coming out of fiscal year '05.

And we are feeling pretty good about what we have to deliver in terms of fiscal year '06 in Professional and Trade.

Okay.

Appreciate it.

I will turn it over now.

Thanks.

We will move on to a question from Allen Zwickler at First Manhattan.

Hi, guys.

How boring.

But we will get over that, right?

The proverbial question about journals and what is going on, and I guess a macro question and then I have a micro one in terms of publicity, and agreements that you've made with the government, et cetera, if you could just give us a quick update on that?

I would say the macro level assessment is that, in terms of publicity and some of the accurate information and, frankly, some of the misinformation, overall I believe that has settled down a bit and that the noise level has gone down.

And I think, frankly, the dialogue is much more constructive and healthy.

As I've said to you before, the most robust strategy I believe for any publisher, particularly a publisher like Wiley, with its investment in STM, is to continue to invest in more discoverability and broader dissemination of our content.

And some people don't like to go back to the past, but the recent past is six or seven years ago, we started making those investments in something called Wiley InterScience and it is now a profitable online global business.

The usage statistics are all heading in the right direction.

And it is not because we're conducting that business exactly as we did when we started the service.

We continue to change and evolve.

We have these partnerships with a number of intermediaries that are helping send people to our site.

We are adding more content.

One of the reasons why society journal publishing has been a robust strategy for us is not only do we get the print access there, but we are able to fold it into Wiley InterScience and deliver more content there.

The government initiatives, whether it be the review in the U.K., which happened some months ago or the NIH policy, I think when all is said and done, the outcome of those things was certainly at least as good as we expected, maybe slightly better.

That doesn't mean you just sit back and relax.

We will continue to make the investments we think are the right ones to make to get more content out there and to get price and value in line with the needs of our customers.

I made some reference in my comments about STM, which I want to point out exceeded our expectations.

The numbers that are reported here were better than our internal goals, and we feel very good about that and that says a couple of things.

One is, it says something about our ability to compete in this market and the other thing is I think it says something about the market conditions.

But as I was talking about STM, I made reference to back file collections.

I think it was two to three years ago, when we started digitizing some of these back files, the polymer science one was the first one.

We've opened up a new revenue stream, did we have to invest to make that happen?

Absolutely.

But it was interesting, even in an environment where there are tight library budgets, people are buying this new content, which means that they will find the money for the things that they value.

And we have accelerated those back file collections, digitizing that content, several other areas, as I mentioned earlier.

I made some reference to Pay-Per-View.

Individual article supply.

These were revenue streams, frankly, that did not exist two or the years ago.

And they are revenue streams that exist today.

And so I would have to say, looking back over the year, the environment there has stabilized a bit.

But we're not going to rest on our laurels.

We're just going to just keep building on the investments we've already made, and we think we saw in -- certainly in '05 some of the benefits of that.

I also want to say the STM book business, which had been flat for several years, the fact that I could talk to you about six consecutive quarters of robust growth, the fact that we made investments in some online dissemination there, that is a very positive story as well.

So macro level, trend is more positive than it was a year ago, within the context of Wiley.

We absolutely feel strongly about our position in that market, and the strides we made in the last fiscal year.

Okay.

And thank you.

You're welcome.

Did you say we were boring, by the way?

No, I said you were roaring.

Oh, roaring?

That's better.

And boring, by the way if that's what you said, what I was going to say if consistent results like this are boring, that's my definition of a good time.

So we will be boring.

Well, any way you slice it, any way you slice it.

I will take roaring.

Two others.

One is, you did buy back at least from a historic perspective more shares than -- than in a while.

Is that -- while we know the cash flow was on the high side, if all things being equal, and this year went by, would you still feel like you want to be active in the market?

I know there was some -- an opportunity to buy some blocks.

Was it more about that opportunity or it was just a general statement?

Yes, it is -- Allen, it is a couple of things, one is, you point out, certainly we did buy that million shares back from a long-term shareholder who still has a pretty significant position in the Company.

So that was an opportunistic repurchase for the Company.

Aside from that, we still bought back 2 million shares which is pretty well ahead of what we've done in the recent past.

And that certainly does relate to certainly how it is we view in terms of the disposition of cash, or excess cash generation, that's beyond what our operating need, and certainly we did have a healthy year.

I think our pace in terms of repurchase shares has something to do with availability in the market, availability of blocks.

We're clearly not limited from a cash flow perspective, I think we have enough cash to buy what we'd ordinarily come across as -- within our legal ability to buy shares within the marketplace.

So I don't necessarily see anything that would either -- that would change our rate of repurchase in the coming year.

But certainly that is not a promise or a guarantee.

It is just a very general statement based upon current conditions.

I will kind of leave it at that.

And lastly, just in terms of looking at the college these day, the mix of books versus CDs, in terms of college students buying these products, I mean I almost have three college students so I'm afraid to even ask the question, but what do you see, what are the trends of that switch from books to disks, or some combination?

This is Will again.

Basically, everything, just about every package that we publish in our higher education business has at least one, and in many cases several, electronic components that go with it.

So the business has already made a transformation from what was at one time exclusively print to one that is a combination of print and electronic.

It is still predominantly a business where print is most of it and then there is some electronic.

As we have spoken about in the past, I really continue to see over the course of a period of time, three years, no more than five years, where the swing is going to go the other way, where it will be more electronic, and still some print, but less print.

I think it will take that period of time because of the reasons I've mentioned before, that there is the human element in all of these things, and that is getting the academic community to embrace the technology.

It is not because publishers like Wiley don't want that evolution to happen.

In fact, I would love to see that evolution happen faster.

But there is the human element of how professors teach and get them to embrace the technology.

But I really believe the conditions, the market conditions and feedback from the market in the last 12 months, there is some good news there.

And am I happy with the fact that we did not have a strong year in Higher Ed?

Of course I'm not.

Would I prefer that the conditions were better?

Of course.

But I think -- there is some symbolism there, I think it really is one of those points that we'll look back to, that we will have accelerated this evolution to more electronic dissemination, which I think over the long term will allow publishers to deliver more content and more value to customers than you can in a print world.

So, sorry there is no short answer to that.

None of my answers are short, as you know.

But you should anticipate over the next two to three years certainly still print predominant with some electronic.

The swing will continue to happen when you go years three, four, and five, much more electronic probably relative to print.

I see print for as long as I can see in the future, in Higher Education.

I think it will look different.

It will be lower production value, almost lab manual like, and that most of the content and most of the inter-activity of course will come from the electronic component.

I think it will be at price points that can be very attractive to students and still have a very positive characteristic in terms of cash return on investment for a company like Wiley.

I'm genuinely excited about the prospects there, despite the fact that there is -- when you are going through these kinds of transformations, you can get sometimes a bit bumpy as it did in the last year.

But that doesn't in any way diminish my conviction for what we do, as a Higher Education publisher, what we're capable of doing, not only in the United States but around the world.

And my firm belief that information, education, is absolutely something that is not only valued today, but will be valued at an even higher level in the course of the next few years in a global economy.

We're already seeing that in other parts of the world.

And I think are you going to see the United States, frankly, re-evaluating some of the investments it has made in its education system, some of the research that is going on, some of the things that are happening with science and technology and engineering education, to realize that by not reinvesting in those things, this country will lose its competitive advantage globally to countries like China and India.

So I see that actually as a robust thing for publishers like Wiley because I think it will become a higher priority in the United States as it is in places like China and India right now.

Well, that was a boring answer.

Okay.

And I'm going to get back in the queue, but just hopefully if I don't get a chance, could you -- to that point with India and China, do college students there buy books, disks or is it -- just to understand the world a little better, what is -- how does it work out there?

The -- by my standards, the short answer would be books, primarily.

The big issue or the big difference between books, textbook sales in India and China vis-a-vis textbook sales in the United States are the price points, like just about everything else in those economies.

The price per unit is very different than in some of the other countries that we do business in.

And as a result, the economics for that for us, I believe, will again be become more attractive if and when we can deliver more electronically.

I think the economics get better in those areas.

And I think the appetite for it will be there, eGrade Plus, which is one of the electronic products that Wiley launched last August quite successfully, is already being pilot tested in a major university in China and we have a collaborative relationship there and we're looking for ways to deliver more content that way.

So the long-term solution in countries like India and China is not, in my opinion, to have high cost textbooks or to try to cut prices to -- but still have all the production value in there.

I think the long-term solution is more electronic dissemination.

Right now, it is low-cost books.

Thank you very much.

But it is growing, obviously.

And so we are getting the benefit of that today.

You're welcome.

Next up is Sami Kassab at Exane.

Good morning, gentlemen.

Good morning, everybody.

Good morning.

I have three questions, if I may.

First of all, regarding the Higher Education business, can you comment on the evolution of the sell-through rate over recent years and how do you see this ratio going forward?

In other words, the percentage of students buying textbooks, which have been adopted by professors, please.

And then I have a follow-up on that theme, which is where do you see more appetite for the packages for the CD rom for the -- or the I.T. packages that you offer, is the appetite strong at the professional level whom you market your books to?

Or do you think it is stronger at the student level who buy the textbooks, please?

Okay.

Starting with sell-through, one of the reasons why the industry showed very little growth, if any, in let's take the calendar year that ended December 31st, 2004, is because sell-through obviously decreased.

And when I talk about sell-through here, I'm talking about new textbooks and related packages.

Now, we have spoken in recent conference calls about the fact that the used book market in terms of market share for a long time had stabilized.

It wasn't increasing.

It is my belief that in the last 12 to 24 months, there has probably been a pickup in the market share of used books, but that is not the only reason why sell-through for new textbooks decreased in the industry in the last 12 months.

In addition, to used books, a couple of things have happened, specifically within the United States, we have been addressing the issue of -- I don't want to get too technical here, but parallel imports meaning some books that have been sold outside of the United States coming back into the United States, and you may say well, that affects the sell-through in the United States, but globally, the units are still going out there.

So the good news is the units are still going out there, the bad news is when those books come into the United States they are at much lower price points than what we sell into the U.S. market.

And there are a number of strategies we have in place to deal with that particular problem.

In addition, in terms of sell-through of new textbooks, we have found evidence that more and more students have been willing to share books for the same course.

That's always been there, but we believe that there has been more of that going on in the last 12 to 24 months, reflecting concerns again about the overall cost of these packages.

When I refer to packages, and who is interested in them -- and by the way, I want to go back just for a moment to this point.

I certainly will not and must not minimize the challenge before Higher Education publishers to get this price value in line.

I am absolutely confident we will.

But, you don't just flip a switch and make that happen.

We have been making investments in a number of different initiatives to deal with this.

Having said that, I do want to make sure everyone understands that the issue here is not that students aren't gaining access to this material.

They are gaining access to it.

They're just not willing to pay the same price.

Now, you may say well, that's very comforting.

Well, it is somewhat comforting to me, it is not that they're not interested in gaining access to it, they will buy used books, they will share books, they'll try to get parallel imports, they'll go on online sites, they'll try many different ways, it is not as though they are not interested or that they feel that they can succeed in their education without it.

So, what that indicates to me is that the underlying demand is there and what we have to focus on is the price and value.

It is not price alone.

It is price and value.

So then going to the question about packages and where the interests are.

I would say overall, there is a greater appetite among the student population to experiment with the online delivery of CDs, all sorts of other electronic ancillaries.

But we also have through pilot tests, focus groups, a clear indication from the current generation of students, the ones who are on campus right now, who say to us, we don't want a complete textbook online.

We want to be able to gain access to the print copy, except we would like it at a lower price.

So we want to be careful here when I make the comment that there is a human element.

It is not just professors.

There are many students who feel that there is a limit to how much print -- how much text on the screen is useful to them and still want access to the print.

So the robust strategy for that is to lower the production cost, the production value of the print textbook.

I mentioned that as an initiative, so that we can deliver that print at a lower cost.

And attack the used book market as well as the sharing of textbooks, while delivering more of the visualization, the inter-activity through the electronic components.

So there is a -- there are a number of different things we're working on here, so -- and it appeals to varying degrees to both students and professors.

Very helpful.

I have the last question regarding the STM business.

It would seem that growth was mostly driven by the book program as well as by new society donors.

However, could you please elaborate on the growth in the subscription revenues from your own titles, please?

You're right to break apart the various components of STM revenue.

First is, I mean the easy way, well, one of the easy ways to start is to look at books versus journals.

And overall, the contribution to year-on-year growth was, in terms of percentage growth, was very positive in both cases.

So both journals and books contributed to it.

And then you can take the next level and you can say okay, what about print versus online.

And there, the story is, with the STM journals business is that the online aspects of our business through a combination of enhanced access licenses, as well as individual articles and back file collections, have contributed to the year-on-year growth.

Another way to look at it is if you go back many, many years, not this year, not last year, not even just the year before, but go back further than that, many STM publishers were putting forth significant price increases.

Price increases have moderated considerably over the last two years.

As they have for the industry, they have for Wiley.

And in terms of the existing journal business, if you strip away all the stuff that we just talked about and you say, take your existing journals, this year, versus your existing journals last year, the growth has moderated mainly because our pricing has moderated, we're still -- actually, we are getting growth with enhanced access licenses of those journals because smaller institutions through consortia are now gaining access to that content that they couldn't get before, because their library budgets couldn't afford it.

So we're negotiating deals with consortia and getting more content out there that way.

But the biggest contributors year-on-year growth in STM would be, yes books, yes journals, yes the addition of society journals, less so pricing than in the past, increased usage, and new revenue streams like back file collections and individual articles.

Okay.

Very quickly, what's the level of price increase you are to pass through in your current fiscal year, please?

Somewhere in the vicinity of 5 to 7%.

That's a rough range.

Thank you very much.

And that of course varies from journal to journal, but if were you looking at an average.

Thanks a lot.

You're welcome.

Now we have a question from Ellen Gibbs at CRI Partners.

Thank.

In the past, you've been very successful with acquisitions.

Is your emphasis now on stock repurchase mean that you are not going to be doing that any more or there is not much out there that is of interest to you?

Ellen, this is Will.

We -- the main reason why we were not able to report any significant acquisitions in -- well, frankly since the Hungry Minds acquisition, we've had some smaller ones, throughout the last few years.

But it really has to do with supply on the one hand, and two is we're very, very careful, as I know you realize, making sure that the opportunity makes strategic sense, and that we are able to pay what we would consider to be a responsible price, and you've heard me say over and over again, that the worst thing you can do in my opinion with acquisitions is to overpay because then you are swimming upstream from that day forward.

And so I think the main issue really here has been a lack of supply, and frankly, we -- every day, there is someone at Wiley looking at acquisition opportunities, at least one person, frankly, there are more, and we were able toward the end of the fiscal year, acquire some small relatively small businesses that compliment what we're already doing, in some cases, you can almost call them a product line, with very nice cash return on investment characteristic, we will continue to do that.

And if the big opportunity comes up, and it makes strategic sense, we believe we have the expertise, and the balance sheet to make that happen.

So I would not read anything into the lack of any significant activity there, to be anything more or less than supply.

And so as I would hope you would want us to, as we're building cash, if we don't see a wonderful opportunity either to invest in organic growth or in an acquisition, what we'll do is we will find ways to give it back to our investors in the form of the buyback program, dividends, and things of that nature.

And so we are constantly thinking about the best ways to deploy our cash in our balance sheet.

I must say we feel really very good about the discipline that we bring to that, and you should continue to expect us to do that in the future.

Thanks.

And on the cash flow statement, we have increased the level of acquisitions once again as Will noted, because of supply, 3 million in fiscal '04 and 22.5 million in fiscal '05.

So the level, in fact, has increased at the same time as the share repurchase program has kind of stepped up.

So in both case, both share repurchase and with respect to acquisitions, it is availability of the thing as opposed to cash.

We have, quite frankly, a very generous supply in production of cash within the Company.

So that's not a limiting factor.

Thank you.

You're welcome.

[OPERATOR INSTRUCTIONS] Gentlemen, no one else has signaled.

I will turn things back over to you for any additional or closing comments.

Well, thank you very much for your continued interest and support and for all of your questions and comments.

And we look forward to speaking with you again after the first quarter of the new fiscal year.

Thank you.

Thank you again for joining us.

That will conclude today's conference call.

Have a good day.