Longhorn’s diversification is paying off
A major challenge that can confront any company is whether to diversify its product offerings. Like any other major business decision, it involves a lot of uncertainty and the rewards and the perils can be extraordinary.
However, there are firms proving that diversification does not need to be quite such a roll of the dice. One such firm is Longhorn Publishers Limited. The NSE-listed publisher recorded a 70 per cent increase in net profit which, according to managing director Simon Ngigi, was propelled by an aggressive product diversification.
From less than six companies in the early years after independence, Kenya’s publishing industry now boasts more than 100. This means intense competition. Further regular changes in curriculum, piracy and a poor reading culture are among the challenges that make the industry tough.
The government, on the other hand, has been cutting back on text book buying since the introduction of free primary education in 2003.
Mr Ngigi says Longhorn had to develop efficient strategies to ensure sustainable growth. “It is about observing the market and realigning yourself with the trends. One of the possible ways we identified was product diversification.”
Last year, the firm moved into new segments that include reference materials, tertiary books and digital content.
Kenya’s publishing industry has for the last few years heavily relied on textbook sales, which fetch the industry over KSh3 billion per year. This is attributed to the government’s spending on reading materials following the overhaul of the curriculum between 2002 and 2005.
This, Ngigi explains, presented a new market for publishers with everyone rushing to have a share of the business. “Basing your business model on curriculum based books can be dicey,” cautions Ngigi. Curricula are subject to change and this can be challenging to publishers.
Last year, Longhorn signed a deal to print and distribute reference materials such as dictionaries, Bibles, hymn books and charts as it seeks to cut reliance on textbooks. It also acquired intellectual property rights to publish and distribute titles in Kenya and export them to Malawi, Rwanda, Tanzania, Uganda, Zambia, South Sudan and Ghana.
The reference materials, according to Ngigi, are “curriculum resistant” and can be used for general consumption. Reference books, recorded a 70 per cent growth while revenue from primary school books grew by 25 per cent in the year ending December 2015.
In the next three years, the firm expects the titles to contribute to half of its revenue, reducing its dependence on school books which currently makes up 80 per cent of sales.
The move comes at a time when the government is on the verge of launching laptops for primary school pupils. Digitizing content, Ngigi says, puts the firm in pole position to reap big from the initiative. “We believe that we are well positioned. Already we have content approved by the curriculum development body.” The company is currently in talks with various firms in Kenya, Malaysia and the US to deliver Longhorn-branded laptops.
The firm is also partnering with mobile telecommunication providers to offer digitized contents on mobile phones and tablet. Already, Ngigi reveals, Longhorns digital revenues have started to go up.
“We are targeting a minimum of 5 per cent of our total annual revenue this year and we further expect it to grow to 30 per cent in the next three years.” The growing uptake of computers and broadband in homes, coupled with the government’s push for electronic learning in public schools, is expected to continue boosting demand for digital and interactive learning materials.
“For you to be the number one, you have to provide solutions to all the segments in the market,” he says.
In addition, in October last year the firm acquired 15 school book titles from Apex Publishers, barely a year after buying 43 titles from iconic publisher Malkiat Singh in a deal worth Sh83 million in cash and royalties.
The firm continues to firm up its product offerings for ECDE, tertiary colleges, universities and medical training institutions. There are also materials such as revision books and creative books for children in addition to the textbooks.
With hand-held devices such as smartphones and tablets becoming more affordable and data costs going down, fewer people are consuming the printed word each year. Hence businesses are increasingly using digital publishing to reduce marketing and production costs to reach new markets and to drive greater sales and profits. Readers, says Ngigi, increasingly prefer to find and consume content in digital format.
The availability of books in digital content is not only a matter of convenience but also offers a pricing advantage to clients in that digital books come at almost half the cost of hard copies. “We understood the trends and opportunities unique to digital publishing and decided to position ourselves to survive and profit.”
On expansion, the company has so far set up shop in Tanzania, Uganda, Rwanda, Zambia and Malawi. It has acquired two properties in Uganda and Rwanda and Ksh120 million and Ksh80 million has been set aside for Tanzania and Uganda respectively.
The publishing sector lacks major new capital inflows from private equity and venture capitalists whose participation helps in boosting professionalism, governance structures and supplying critical capital for rapid growth.
Cross listing in east Africa makes the shares more easily available to investors who want to share in the Longhorn dream of “expanding minds”. In addition, existing shareholders will benefit from better pricing through improved liquidity of the Longhorn shares.
Publishing houses across the region have been losing billions to book pirates. Piracy, according to Mr Ngigi, takes 30 per cent of the entire business in Kenya, meaning about Sh6 billion ends up in bank accounts of the rogues. This is a menace Ngigi says must be fought ruthlessly. Another challenge has been the tax on books. Ngigi attributes the lower sales of textbooks to the introduction of 16 per cent Value Added Tax two years ago. He says such taxes hinder the success of free primary education.