Wolters Kluwer Education From A to Z

1
Wolters Kluwer Education From A to Z

• Investor/Analyst DayAmsterdam25 November 2003

2
Agenda

• 8.45 - 9.00             Introduction Nancy
  McKinstry
• 9.00 - 10.15           Business overview and
  Markets - Harry Sterk
• 10.15 - 10.30 Technology - Ilhan Aksoycan
• 10.30 - 11.00 Q A
• 11.00 - 11.30 Coffee Break
• 11.30 -12.30 Strategy and Q A - Harry Sterk
• 12.30 - 14.00 Lunch, Hilton Hotel
• 14.00 - 17.15 Product demonstrations, WK office

3
Introduction

• Nancy McKinstry
• Chairman Executive Board

4
Wolters Kluwer Vision
The Professionals First Choice Provide
information, tools and solutions to help
professionals make their most critical
decisionseffectively and improve their
productivity

• Large and profitable markets with potential to
  create value for customers
• Leading and distinct positions in key
  professional segments
• Emerging customer needs and technologies create
  opportunities to build new products and services
• Build on proven capabilities in content
  development, technology and customer service

5
Education is an attractive business

• Stable, traditional text book business
• Market size 1.4 billion (addressed markets),
  average growth 1-3
• Market-driven by multi-local content needs
• Evolving electronic solutions
• Attractive margins and stable cash flows cycle
  improvement in next three years
• High market shares
• Education high on (political) agendas
• Brands and capabilities in Health, LTBE in
  compliance that can be leveraged

6
Key Strategy Elements
Invest
1

• Reinforce text book publishing leadership
  position
• Expand market share - mixed-media learning
  solutions
• Pursue growth in adjacent markets

Reduce Costs
2

• Develop shared back-office services
• Right-sizing in country operations

• Strengthen senior management team

Reorganize
3
WKE a business which meets the strategic
direction of the group and complements the other
divisions
7
Wolters Kluwer Education Vision
Mission offering learning communities compelling
cross-media learning solutions.
Key financials Achieve above market average
growth, 25 EBITA approach
Vision The leading and fastest growing provider
of quality learning solutions.   Integrating
content, services, technology to facilitate
learning processes. 
Strategy Protecting and growing the core
business Marketing and sales, integrated
solutions, on-time, 20 innovation,
segmentation Aggressive expansion in new
markets (e-learning, services, home market)
8
Focus on delivering solid margins while
positioning for growth
TOMORROW
TODAY

• Improving margins rigid cost control
• Market focused management
• Learning services,integrated solutions
• Multiple business models and sources of revenue
• Re-use of content assets
• Sell to parents, students, schools, government
  and corporations
• Curriculum and non-curriculum related
• 1 in integrated learning solutionsand services

• Stable margins
• Product focused management
• Textbooks and ICT
• Publishing-focused business model
• Single use of content
• Sell to schools and government
• Curriculum related
• 1 in traditional education publishing

9
Business Overview and Markets

• Harry Sterk
• CEO Wolters Kluwer Education

10
Overview

• Historical core activities of WK in Europe
• Established as separate division in 2000
• Total 2002 sales EUR 300 million
• Total 2002 EBITA EUR 56 million
• EBITA margin 18.7
• Approximately 1,500 employees
• Seven countries, six core segments

• Primary
• Secondary
• Higher
• Vocational
• Atlases/After-school market
• School/Teacher Services

• Netherlands
• Belgium
• Sweden
• Germany
• Austria
• Hungary
• United Kingdom

11
WK Education Organization
Division Management Harry Sterk (CEO) Gerard Vork
(CFO) Ilhan Aksoycan (CTO) Patrick Hendriks
(BID) (7 FTEs)
FTEs as of year-end 2002 (Digital Spirit 2003)
Tighter, leaner and more effective management team
12
Revenue Breakdown 2002
13
Portfolio
Secondary
Vocational
Primary
Higher
Other
Netherlands
Belgium
United Kingdom
Germany/Austria
Sweden
Hungary
Surface indicates relative size of activity in
WKE portfolio
14
Financials
15
Market Profile
Segments

• Primary education
• Secondary education
• Higher education
• Vocational education
• Corporate
• Home

Purchasers

• Schools
• Government
• Business
• Parents

End Users

• Students
• Parents
• Teachers
• School Administrators
• Professionals

Very often users are not the buyers
16
Market Segments Characteristics
17
Market Characteristics Primary
Target Group
Pre-school to 12 years
Teachers
Decision Making Unit
Schools (government funding)
Purchasers
Approx. 10 years per subject area, on average one
replacement per year
Lifecycle
Approx. 10 subject areas
of subjects
25 of division revenues (2002)
Share of division revenues
variable per country (average 3)
Market Growth Rate

• Uniform, relatively simple curriculum limited
  development costs
• Long cycles, generally stable business
• Limited use of information technology (ICT)
• Price elasticity relatively low (value pricing)
• More lump sum financing opportunity for services
• Teachers shortages, and performance demands

Trends
18
Market Characteristics Secondary
Target Group
12-18 years
Teachers
Decision Making Unit
Parents (in most cases)
Purchasers
Curriculum set by government (4-5 years). Core
methods have long life (revised editions)
Lifecycle
Approx. 10-15 subject areas (varies per country)
of subjects
38 of division revenues (2002)
Share of division revenues
Depending on curriculum cycle (average 3 per
year)
Market Growth Rate
Trends

• Performance demands
• Teacher shortages
• Increased use of ICT scope for revenue growth
• ICT infrastructure developed
• Opportunities for integrated solutions

19
Secondary WK Curriculum Effect
120.0
110.0
Index( base 2000)
100.0
/-10
approx. 3
90.0
80.0
1999
2000
2001
2002
2003
2004
2005
2006
The impact of curriculum effect may vary
(depending on adoption rates), but basic trend is
evident
20
Market Characteristics Higher
Target Group
18 years (higher education)
Teachers
Decision Making Unit
Students
Purchasers
Varies by title Bestsellers generally have long
cycle (different editions)
Lifecycle
High number of subject / courses
of subjects
18 of division revenues (2002)
Share of division revenues
3 per year
Market Growth Rate
Trends

• Fragmentation / specialization opportunity for
  content solutions (content organizer) topline
  growth
• Internationalization cross border sell
• ICT infrastructure generally well in place
• Upfront financing opportunities (co-development
  with customers)

21
Market Characteristics Vocational
Target Group
16 years
Teachers
Decision Making Unit
Students / Schools (varies per country)
Purchasers
Varies by title Bestsellers generally have long
cycle (different editions)
Lifecycle
High number of subject / courses
of subjects
15 of division revenues (2002)
Share of division revenues
3 per year (varies per country)
Market Growth Rate

• Fragmentation / specialization opportunity for
  content solutions (content organizer) topline
  growth
• ICT infrastructure generally well in place
• Upfront financing opportunities (co-development
  with customers)

Trends
22
European Education An Attractive Market

• Positive curriculum cycle
• Increasing performance demands
• Strong market positions and brands
• Loyal customers, long cycles create (70-80)
  recurring revenues
• Low price elasticity
• ICT infrastructure improving
• Local / fragmented competition no pan-European
  competitor
• Homogeneous range of activities
• Government commitment towards education
• No large (either in-or-out) state adoptions

23
Operations Overview
24
Market Positions
Revenue By Market Segment (2002)
Addressable Markets
WK Markets and Est. Share
28
Primary, Secondary, Higher Ed
71M
Belgium
Other 4
262M
UK
17
Primary, Secondary
Primary, Secondary, Higher Ed, Professional, Maps
Sweden
258M
21
Vocational 15
Primary 25
Primary, Secondary, Higher Ed, Vocational, Maps
336M
Netherlands
30
50
Higher Ed 18
60-70M
Germany
Vocational
2
330M
Primary, Secondary
Secondary 38
12
Primary, Secondary, Vocational
Austria
42M
Total 300 M
16
Primary, Secondary, Vocational
Hungary
35M
All addressable market and WK share data are
2002. Refers only to traditional schoolbook
market. Excludes some 31 mln revenues from new
activities outside traditional markets (e.g.
Liber Hermods (Sweden), Moorhouse Black (UK),
After-school market (Netherlands))
25
The Netherlands

• Main strengths
• High market shares
• Strong brands
• Broad portfolio, present in every segment
• Scale economies

• Strategic priorities
• Integrate ICT in learning solutions
• Improve marketing and sales
• Build out services
• Standardise processes

Rank WKE
Segment
Main competitors
Primary
2
Malmberg, Zwijssen
Secondary
1
Malmberg, Thieme-M.
Higher
1
Various small players
Vocational
1/2
Thieme M., Nijgh, Malmberg
Atlases
1
-
26
Sweden

• Main strengths
• Strong market positions
• Broad portfolio, present in (almost) every
  segment
• Liber Hermods distance learning capabilities

• Strategic priorities
• Integrate ICT in learning solutions
• Build out Liber Hermods to corporate market

Rank WKE
Segment
Main competitor
Compulsory
1
Bonnier, Natur/Kultur, Gleerups
Secondary
1
Bonnier, Natur/Kultur, Gleerups
University
2
Student litteratur, Natur/Kultur
Professional
1
-
Atlases/Maps
1
-
27
United Kingdom

• Main strengths
• Strong brands
• High quality products
• Active in all segments
• Connection with Moorhouse Black (cross selling,
  total solution offering)

• Strategic priorities
• Capitalize on additional government funding of
  e-learning products
• Expand Moorhouse Black (e.g. corporate market)

Rank WKE
Segment
Main competitor
Primary
4
Heinemann, Ginn, OUP
Secondary
3
Heinemann, Hodder, OUP
Vocational
2
Heinemann, Thomson, Hodder
International
2
Leader in Caribean
Services
n.a.
-
28
Germany / Austria

• Main strengths
• High market share in vocational
• High margin
• Strong organization and management
• Connection with Digital Spirit (e-learning
  technology and customer base)
• Lean operation

• Strategic priorities
• Expand position in Compulsory (Austria and
  Germany)
• Explore opportunities in corporate market
• Develop services and tools

Rank WKE
Segment
Main competitor
Vocational
1
Westermann, Handwerk-T
Compulsory
5
Cornelsen, Klett, Schroedell, Westermann
29
Belgium

• Main strengths
• Strong brands
• High market shares
• High quality products
• Active in all segments

• Strategic priorities
• Integrate ICT in learning solutions
• Expand in higher education

Rank WKE
Segment
Main competitor
Primary
1
Van In, Die Keure
Secondary
1
Pelckmans, Van In, De Boeck
Higher
1
Highly fragmented
30
Hungary

• Main strengths
• Strong brands
• High market share in vocational
• High quality products
• Good relations with government
• Lean operation

• Strategic priorities
• Expand number of subjects in Primary
• Build out position in Secondary
• Continue to bid for e-learning tenders of
  government

Rank WKE
Segment
Main competitor
Primary
2
Nemzeti, Apaczai
Secondary
3
Nemzeti
Vocational
1
Tankönyvmester
31
Digital Spirit / WKE-Online

• Main strengths
• Innovative and reliable technology base
• Market leader
• Strong brand
• Excellent customer base
• Profitable competence center

• Strategic priorities
• Expand in corporate e-learning
• Clone corporate e-learning solutions to
  curriculum based e-learning
• Integrating WK-E Online with Digital Spirit
  creating one-stop technology shop
• Fold DS into BV-Eins (managerial, backoffice,
  administrative etc.)
• Division wide CMS implementation (DAL)

Back-End Content Management (WKE-Online)
Front-End Content Production (digital spirit)
Delivery Learning Management System
32
Technology Strategy

• Ilhan Aksoycan
• CTO Wolters Kluwer Education

33
Technology supporting the business

• Main components
• Information systems supporting product-planning
  development, marketing, sales distribution
  and back-office
• Technical infrastructure to run these systems
  and to enable optimal communication within the
  division
• Divisional strategy
• Standardization based on best of breed
  technologies like SAP, KP, Oracle etc.
• Standardization of processes enabling joint
  activities like joint printing deals
• Standardization of information streams leading to
  uniformity of information leading to improved
  control
• The status of implementation
• Roll-out will be complete by the end of 2004

Resulting in Uniform and reliable management
information, improved process control, costs
below 3.5 of revenues
34
Role of technology in products

• Flexibility.Opportunities in our markets and new
  educational-methods and structures require a high
  level of flexibility from our products and
  production processes.
• Personalized content and blended
  learning.Customers require increasingly
  personalized content and want products based on
  different and often combined media formats
  (blended learning)
• Speed and control. Greater diversity of products
  and shorter time to market requires better
  control of the production processes
• Reusage of digital content assets.Personalized
  products, delivered in different media formats
  makes reusability of content and learning
  components essential

35
Divisional Strategy

• Standard technology for the internal
  production-line for content production and
  product assembly. Based on industry standard
  components.
• Open architecture for electronic publishing and
  e-learning
• In-house competence around integration of
  content, courseware development and
  e-publishing/e-learning
• No in-house development of core technologies.
  Strong preference for industry standard
  technology components with in-house integration
  capability
• Partnerships for infrastructure with main players
  in the industry (like IBM) to deliver the
  infrastructure and operational competence

Resulting in Low technology risk, controlled
technology investments, incremental costs, short
time to market
36
Technology enabling products
Workflow management, planning and fulfillment
systems
Content Factory
Publishing
Product
Content acquisition
BOOKS
Quark PDF
Structured, re-usable, media
independent content
Conversion to XML
E-LEARNING
Product Assembly
LMS
WEB Publishing
Digital Asset Library
REFERENCE
Content creation direct to XML
Etc.
Infrastructure
37
Implementation Status

• Content Management System (CMS)Concept has been
  defined and is being rolled out on a project-by
  project basis. In 2004 the roll out of CMS will
  be accelerated aiming to bring all new products
  into this platform
• Competence center Digital Spirit/WKE OnlineThe
  internal competences around e-content
  development, courseware development and
  marketing/sales of e-learning products has been
  strengthened through the acquisition of Digital
  Spirit
• IBM and Microsoft partnershipsA cooperation with
  IBM is in place, discussions with others ongoing
• Developed productsSignificant products like the
  Liber Hermods distance learning platform Athena,
  Digicoach product of Wolters Noordhoff and the
  Moorhouse Black education portal are based on
  this technical platform.

38
Implementation Status
SAP, Klopotek and others
Workflow management, planning and fulfillment
systems
Content Factory
Publishing
Product
Production Departments Opcos
WKE Online
Content acquisition
BOOKS
Quark PDF
Structured, re-usable, media
independent content
Digital Spirit
Conversion to XML
E-LEARNING
Product Assembly
LMS
WEB Publishing
Digital Asset Library
REFERENCE
Content creation direct to XML
Etc.
Partners (e.g. IBM)
Infrastructure
39
QA
40
Strategy

• Harry Sterk
• CEO Wolters Kluwer Education

41
Key Strategy Elements
Invest
1

• Reinforce text book publishing leadership
  position
• Expand market share - mixed-media learning
  solutions
• Pursue growth in adjacent markets

Reduce Costs
2

• Develop shared back-office services
• Right-sizing in country operations

• Strengthen senior management team

Reorganize
3
42
1. Invest Reinforce text book publishing
leadership position
Description
Focus Areas

• Copy successful products/approaches from
  geography to geography (e.g., Higher Education,
  atlases)
• Explore opportunities to expand presence in new
  European geographic markets
• Improve sales and marketing capabilities
• Capture larger share of curriculum adoptions
• Expand in segments in current geographies where
  we are under represented

Clone Successful Products
Expand Geographic Presence
StrengthenSales and Marketing
Expand in new segments
43
1. Invest Pursue Growth in Adjacent Markets
SCHOOL BUDGETS (100)

SCHOOL SERVICES SYSTEMS
TEXT BOOKS (4-6)
Currently 30 share of the text book market,
which in itself represents some 4-6 of the total
school budgets
Surface indicates total market size
44
1. Invest Pursue Growth in Adjacent Markets
Services Rent-a-teacher , assessment services,
risk assessment, compliance services, back office
etc.
Home market First time readers material,
edutainment software, atlases etc.
Discretionary learning Language education, IT
skill training etc.
Non Curriculum Related
LEARNING NEED

Learning support Homework support services, exam
preparation, additional learning material
Compliance driven e-learning Health safety and
environment education, etc.
Exam services
CURRENT CORE
Curriculum Related / Mandatory
Text book publishing ICT integration
Schools / Teachers / Students
Parents / Students (home situation)
Business / Corporate/ Government
CUSTOMER MARKET
45
1. Invest Expand Market Share Mixed Media
Learning Solutions

• CD ROM / Internet modules integrated with text
  books
• Electronic components contain exercise material
  for students, and additional (differentiation)
  resources for teachers
• Sold as integrated package, value pricing

Integrated Text book CD-ROM / Internet Modules


No migration !
46
1. InvestSystems and Services Rationale

• Poised for growth - organic growth potential
• Unique launch platform brands, positions,
  channels
• Complementing needs one-stop-shop fully
  integrated solutions
• Fragmentation/ small players consolidation
  opportunity

Text book is the natural access key to this market
47
1. InvestA Natural Evolution
SCHOOL BUDGETS (100)

• Technology
• common platforms and alliances
• Content
• content management systems, digital asset
  libraries ? standardization

SCHOOL SERVICES SYSTEMS
LMS
ICT
TEXT BOOKS (4-6)
Surface indicates total market size
BOOK
48
Risks Opportunities

• ? funding issues
• marketing sales
• compelling products
• right prices (value pricing)
• high innovation levels
• - existing segments
• - new segments (systems services)

? Above market average growth
49
New Business DevelopmentSplit between core and
new business

• Core business development
• Text books with integrated ICT components
• New methods

• New business
• Related products and services building on
  existing assets, skills and/or channels

Initially separate, small teams, scaled up when
there is customer buy-in
50
Customer driven approach

• Previous approach
• Start with developing product
• Build first, sell later
• Selling on product features

• New approach
• Start with business model, start with customers
• Sell first, build later (customer buy-in
  required)
• Selling on customer benefits

Quote from publisher It takes courage to sell
something which you have not built yet
Quote from Harry Sterk It takes more courage
to build something before you have sold it
51
Washing Machine
Ideas
Will you buy this? is the most powerful market
research
A Continuous Process Keep the Machine Full and
Accept Early Failure
52
Venture Capital Approach

• Small, dedicated local teams
• Divisional business development board monitoring
  and cloning. Focus on action
• Idea is as good as buy-in of customers. Funding
  in balance with customer buy-in (committed sales)
• Strict go/no go decisions (threshold investment
  levels)
• Kill or promote quickly. Good concepts get
  scaled up
• Lots of opportunities andpeople trust us.

Exploiting well evaluated investment
opportunities. Low risk, high speed.
53
2. Reduce Costs Reduction of 15 mln between
2003-2006
IT/ICT

• Partnership with prefered suppliers (e.g. IBM)
• One internal e-learning competence centre
• CMS, Digital Asset Library
• Roll-out backoffice SAP/Klopotek

• Printing, design and pre-press outsourced
• Central purchasing
• Asia-route

Production

• Much more performance oriented

Remuneration

• Reductions where possible
• Improving personnel cost/revenue ratio

Staffing levels

• Development based on market buy-in
• Strict go/no-go criteria

VC-approach

• Product formats
• Active cloning

Standardization
and, increase speed
54
3. ReorganizeHow to Accomplish the Mission?

• Having the right people in the right place
• New MDs
• Oath for Growth (contract with staff)
• Emphasis on marketing and sales
• Shift product focus to customer focus
• Core business
• Operational excellence (revenues)
• On-time
• Appropriate quality of content
• Marketing sales, market share game,
  segmentation
• Operational excellence (costs)
• 25 approach (cost benchmarking) identifying the
  issues
• ROIC should exceed WACC (8 after tax)
• Standardization transparency standard systems,
  templates etc.
• Simplify organization
• New business (see presentation later)

55
3. ReorganizeActive HR Policy Oath for Growth

• Signed contract with senior staff on
• 1- top line (organic) growth
• 2- customer focus on buying rather than liking
• 3- active portfolio management
• 4- clear (internal) communication
• 5- bottom line growth
• 6- sticking to the rules
• 7- can-do mentality
• 8- active HR policy culling mediocrity
• 9- sense of urgency
• Active policy to have people in place with the
  right attitude and culture

56
Some examples (past 12 months)

• New Managing Directors appointed in Belgium,
  United Kingdom and the Netherlands
• Merging operations of Germany and Austria
• SAP/Klopotek implementations (financial and
  workflow systems) in Germany and the Netherlands
• Reduction of UK workforce by nearly 20
• Content management system in place
• Strategic (technology) alliances in place (e.g.
  IBM)
• New product family launched with ICT-components
  in the Netherlands

57
Summary

• Well defined and leading market position in
  Europe - scale counts
• Macro-dynamics moving to our advantage
• Clear potential for growth
• rejuvenated management
• customer not product focused
• heavy emphasis on marketing and sales
• potential bolt-on acquisitions to develop the
  core
• available funding from government
• Cost control opportunities continue
• Clear direction and complementary to Group
• We will grow faster than the market