MPS Ltd Management Discussions.
: FY 2018-2019
MPS was established as the Indian subsidiary of Macmillan (Holdings) Limited in 1970. MPS leveraged its multi-decade service history as a captive business and built unique capabilities through strategic partnerships. Following a change in ownership and management in 2011-12, MPS embarked on a period of growth and, with an entrepreneurial mind-set, consistently reinvested in the business. MPS made six acquisitions in six years; the first five were acquisitions of scale, while the last one was an acquisition of scope. The company now provides eLearning and digital publishing solutions and is a global partner to the worlds leading enterprises, publishers, learning companies, and content aggregators. MPS is listed on the major Indian stock exchanges and enjoys a market capitalization of around INR 892 Crores as of March 31, 2019. 2,536 associates power MPS across seven development centers in India, two subsidiaries in Europe, and five client offices in the US.
After making substantial progress in the publishing outsourcing market through its content and platform solutions business segments, MPS entered the more significant and growing adjacent market of eLearning through the acquisition of Tata Interactive Systems in June 2018. The purchase established a new business segment called eLearning Solutions for MPS, which is expected to be the Rising Star for the company in the coming years. A summary of MPS three business segments, including value propositions, business strategies, inorganic growth considerations, and client profiles, is provided below:
|Overview||Content Solutions Content Authoring and Development, Content Assembly, Content Transformation, and Content Fulfillment||Platform Solutions DigiCore, THINK360, Mag+, TOPSIM, and all platform-related services||eLearning Solutions Custom Development, Managed Learning Services, Simulations, Serious Games, Mobile Learning, Micro-Learning, and AR/VR/Mixed Reality|
|Proportion of Business Today||64%||17%||19%|
|Value Proposition Business Strategy||Operational Excellence Play the role of a consolidator for publishers and pass on efficiencies gained from scale and automation in savings to customers.||Product Leadership Provide market-leading platforms at competitive prices.||Product Leadership Play the role of a disruptor by introducing automation and tool- based development to make learning smarter.|
|Inorganic Considerations||New Clients and Capabilities||New Capabilities||Geographic Expansion and New Capabilities|
|Client Profile||Publishers, Corporations, and Content Aggregators||Publishers, Corporations, and Universities||Corporations, Universities, and Publishers|
Journals content management is the largest business unit in the content solutions segment. The business has gone through a series of evolutions since Macmillan established it in 1970 as the first outsourcing business in publishing. From the transition of editorial services to project management during the 1990s to the movement to a platform-based approach in the 2000s, MPS has always been on the forefront of innovating and driving change in journals content management. We have more than four decades of experience in journals content management that is powered today by more than 1,200 employees in India. Our center in Bengaluru is now a technology center that powers journals production operations in Chennai and Dehradun. MPS has led the transition from technology-supported to technology-led journal production with strict digital-first workflows and standardization across products. Drastic reductions in turnaround times, vertically aligned services, and lower cost structures that keep pace with changes in the industry have made MPS tremendously successful as clients look to consolidate vendors. More recently, we have enabled the application of machine learning and advanced analytics to be a business reality in journals production, setting the foundation of our next growth phase.
While journals have given us a boost in the science and scholarly markets in the content solutions segment, MPS North America LLC, established in 2013, has strengthened our position in the educational publishing market. The addition of US-based services, including content authoring and development, rights and permissions, and higher-end creative services, has enabled us to achieve new scale and competency benchmarks. These services were essential in attracting educational publishers as they selected global and comprehensive vendor partners that could help achieve their goals of faster and richer product development at competitive prices. To scale efficiently and in synchrony with the needs of this upcoming market, MPS completed three US-based acquisitions in quick succession:
1. The 2013 acquisition of Element LLC (Orlando, FL) allowed MPS to enter the K12 market. We gained significant capabilities in content development and design across the STEM (science, technology, engineering, and mathematics) verticals.
2. The 2014 acquisition of Electronic Publishing Services (Durham, NC) empowered us to expand our presence in the Higher Education and Academic Publishing segments. We gained new capabilities in rights and permissions, content authoring, and development for the Higher Ed market and high-end media asset development opportunities for STM (Scientific, Technical, and Medical) customers.
3. The 2015 acquisition of TSI Evolve (Orlando, FL, and Effingham, IL) expanded our capabilities in reading, language arts, world languages, translations, and design/media for the K-12 market.
These acquisitions have positioned us on the positive side of all significant vendor consolidations in the educational publishing market since 2013. We now have a thriving educational practice that has surpassed the peak revenue of the combined entities that we acquired. We have consolidated operations for these acquired assets with our India-based facilities and strengthened project management to provide more effective client engagement.
MPS comprehensive capabilities in content solutions have allowed us to develop deep client partnerships and grow in a highly competitive and fragmented publishing outsourcing market. Much of this success, particularly with journals customers, has been the result of automation and efficiencies delivered through a system-based approach. Based on this approach, MPS developed the DigiCore platform to generate annuity-based revenue, resulting in more strategic relationships with its customers. After gaining momentum in this business area, MPS committed to the approach and added a business segment called Platform Solutions in 2015. To further enhance our business capabilities in this area, we completed the following acquisitions:
1. The 2016 acquisition of Mag+ (US and Sweden) from Bonnier Corporation augmented our platform capabilities and developed our mobile content strategy for our customers. Following this acquisition, we migrated technical operations and support functions from Stockholm (Sweden) to Noida (India) and integrated Mag+s business development and marketing functions within MPS North America and Noida. Since then, we have strengthened Mag+s value proposition by offering creative services to provide operational support to our customers for complex and time-sensitive projects.
2. The 2017 acquisition of THINK Subscription (Provo, UT) from Digital River enhanced our content delivery platform framework with order management and customer service capabilities, allowing us to plug into the customer ecosystem for publishers and making us a more strategic vendor partner. We have since completely integrated THINK with two leading MPS platformsScholarStor and MPS Insightand offer them as a platform suite called THINK360. The suite architecture is modular and allows customers to choose the functions appropriate for their current systems and plans.
3. The July 2018 acquisition of Tata Interactive Systems GmBH, now known as TOPSIM GmBH, allowed us to enter the emerging eLearning solutions market. TOPSIM is one of the leading companies worldwide in the field of management simulations. Since 1982, this Germany subsidiary has developed business simulations and conducted more than 2,000 seminars worldwide. Since this acquisition, we have expanded TOPSIMs capabilities beyond Europe to reach all major markets.
1. In June 2018, we acquired Tata Interactive Systems, the eLearning segment of Tata Industries Limited, through our wholly owned subsidiary, MPS Interactive Systems Limited. MPS Interactive enables its clients to address their learning and development needs through technology-enabled, futuristic, and highly scalable learning solutions. Services include gamifications, simulations, custom eLearning solutions, augmented and virtual realities, animations, videos, and micro-learning options. This acquisition has allowed us to make a definitive entry into the significant and growing eLearning market.
The integration process is well underway, and the business is already profitable and moving into a growth phase.
2. The July 2018 acquisition of Tata Interactive Systems AG, now known as MPS Europa, completed our purchase of the Tata Interactive Systems Group. Our new presence in Switzerland allows us to serve parts of continental Europe that require local connections and has also provided us with significant new capabilities in emerging technologies, including augmented, virtual, and mixed realities. Since the acquisition, we have made the business profitable through enhancements to products, marketing, and efficiencies in its delivery model.
MPS vision is to power the differentiation and competitiveness of our customers through smarter publishing and learning solutions. We will transform the publishing and learning industries by making them transparent, real time, and focused on the learning outcome. Through the successful execution of this vision, we will become the undisputed market leader by 2023, admired by all our stakeholders.
Our ambitions will be powered by our values, which define who we are today and will shape our future. These are not principles that we will compromise but tools upon which we will depend.
Excellence is a way of life for us. It means respecting our colleagues, owning our responsibilities, and committing our best efforts to our customers. Excellence is not perfection but rather the simplicity in giving our best effort to every interaction, deliverable, and decision.
Empathy is caring. It means caring to understand things deeply, absorbing the unwritten, and going the extra mile for people who depend on us. Although empathy is usually intuitive, we believe that it can be developed intellectually through impactful programs.
Efficiency is who we are. It means driving automation, smarter workflows, and innovative operating models and not allowing any job to be considered grunt work. We will be doing things very differently by 2023, and we will be innovating to make publishing and learning smarter along every step of the journey.
Consistent with our value of excellence, we work hard to develop internal processes that ensure the highest standards of quality and data security. Our commitment and success are acknowledged by the following certifications:
ISO 9001:2015: This is an international quality management system for the companys journal production business.
ISO/IEC 27001:2013: This strengthens the information security management system; it applies to MPS Indian production units.
PCI-DSS: This global information security standard is awarded by the Payment Card Industry Security Standards Council. This certification (PCI-DSS version 1.2) extends across the MPS fulfillment services unit.
COUNTER 5 Compliant: This international initiative services librarians, publishers, and intermediaries. The standards facilitate the consistent and credible recording and reporting of online usage statistics. This applies to MPS Insight and MPS ScholarlyStats.
The global publishing industry continues to report a stable outlook. However, underneath a stable outlook lies a myriad of changes. Digitization and changes in the way we consume content every day have had an enormous impact on the industry over the past few years. Open access for journals continues to be a disruptor. Also, we are now seeing large publishers embrace newer business models, including subscription models, and additional product streams, such as video-streaming channels, to fulfill the demand for visual storytelling and to keep pace with the growing trend of consuming content through viewing instead of reading. Given our strong platform capabilities and the content and visual design skills gained through the acquisition of Tata Interactive Systems, we are well placed to adapt to such industry disruptions.
Additionally, although we saw some vendor consolidation in the industry a few years ago, we are now seeing a fresh round of consolidation among publishers. A recent news article1 announced that Cengage and McGraw-Hill are merging to create an educational publishing behemoth. MPS is unique in being a preferred vendor partner for both companies, and we will leverage our comprehensive capabilities to drive this existing relationship forward in a more strategic manner following the mergers completion.
Given the industrys modest outlook, publishers continue to consolidate with fewer yet more comprehensive vendor partners in exchange for lower prices. We continue to leverage our lower-cost facilities, systems-based approach, and use of automation to agilely scale our operations to meet client objectives.
The eLearning industry, on the other hand, is poised for growth. One article2 estimates that the industry will grow to USD 325 Billion by 2025 at a compound annual growth rate (CAGR) of more than 10 percent. Enterprises across the globe recognize that eLearning is more efficient and competitive than traditional classroom learning. Hence, they are not just demanding more volume but also looking for ways to make content engaging and learning long-lasting. Our eLearning suite of services and products is one of the most comprehensive in the world. We offer solutions for every step of the learning value chain, from custom content creation to knowledge reinforcement. We are ideally placed to capitalize on industry tailwinds and to gain significant growth over the next two years.
The global macroeconomic environment is continuously changing. We are witnessing the rise of new global powers, massive volatility in oil prices, a delayed Brexit, and increased border skirmishes. The result is an uncertain economic environment where investments might be slow and currencies unstable.
Industry in India is also at an interesting juncture. Although the Export Promotion Council3 predicts a growth rate of 8 to 10 percent in Indian IT and ITeS exports, clients requirements are changing.
Most companies are moving their operations to the cloud to seek faster application development. As a result, IT companies are being forced to change their business models, which were built around infrastructure. Gartner4 predicts that this shift will require a fundamental change in industry skill sets. We are witnessing the same trends and therefore have invested significantly in our platforms business, further diversified our revenue through the acquisition of an eLearning business, and enhanced our geographic spread through the addition of two delivery centers in India (Mumbai and Kolkata) and two subsidiaries in Europe (Germany and Switzerland).
FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE
Keeping in line with market trends, MPS revenues increased by 3 percent, from INR 218.34 Crores to INR 223.96 Crores, in FY 2018-19 on a stand-alone basis. The foreign exchange adjusted revenue growth rate is 1.2 percent on stand-alone basis. At the consolidated level, however, MPS reported an increase of 36 percent [34 percent on foreign exchange adjusted revenue] in revenues over the past year because of the acquisition of Tata Interactive Systems and its European subsidiaries.
MPS reported an EBITDA margin of 26 percent in FY 2018-19, compared with 33.8 percent in the previous year. Our platform solutions continue to grow; these revenues increased by 26 percent. This combined effect increased profit before tax (after exceptional items) from INR 101.86 Crores in FY 2017-18 to INR 107.35 Crores in FY 2018-19. MPS continued to remain debt-free through the year, with surplus funds of INR 212.05 Crores on its balance sheet at the close of the year under review.
SEGMENT AND PRODUCT PERFORMANCES
Our business is divided into three segments: content solutions, platform solutions, and the newly added eLearning solutions. The content solutions segment comprises the creation and development of content for print and digital delivery; the platform solutions segment includes the development of software and technology services programs; and the eLearning solutions segment involves the curation of custom content for active learning and its subsequent distribution within an enterprise.
On a consolidated basis for FY 2018-19, content solutions accounted for 64 percent of MPS revenues, platform solutions accounted for 17 percent, and eLearning accounted for 19 percent. Content solutions reported revenues of INR 232.83 Crores, compared to INR 219.77 Crores in the previous year, a 6 percent increase. This segments growth was the result of increasing disintermediation between authors and readers the world over. MPS addressed this challenge through price cuts complemented by increased volumes; the companys moderate revenue growth must be seen as a positive development in a sector where revenues are declining.
Platform solutions reported revenues of INR 59.75 Crores, compared to INR 47.26 Crores in the previous year, a 26 percent increase. A combination of scale, long-term commitments, acquisitions, and competitiveness makes this business an attractive growth area for us. We intend to scale this business through larger and quicker investments.
Our new eLearning solutions segment reported revenues of INR 69.96 Crores. Our cost-management initiatives toward profitability have been completed; we are now in a consolidation phase, with a focus on strengthening the business to develop a foundation for growth.
We are a customer-focused organization and have built capabilities to help our customers achieve their business outcomes. The strengths that allow us to retain our market and product leadership include the following:
Unparalleled Platform-Based Approach
MPS platforms have gained significant momentum in the last five years, and the value proposition of this business is product leadership. Smart and reliable engineering, dedicated customer support, and innovative marketing power our platforms. With the recent acquisition of Tata Interactive Systems, we have further strengthened our platform suite. We are relentlessly focused on leveraging our combined knowledge to enhance our products. For example, we recently added chat-bots, a virtual assistant capability developed by MPS Interactive, to DigiCore to strengthen its value proposition for our customers.
MPS is focused on content services, with a strong emphasis on learning outcomes enabled by efficient yet immersive learning paths. We provide services across the entire author-to-reader value chain, from content authoring and development to distribution and delivery.
In the educational publishing segment, these services include content assembly, media asset development, project management, rights and permissions, design, rich media, and digital learning objects. On the enterprise side, these services include content consultation, content authoring and curation, content organization, content delivery, and content upgrade.
Focus on Innovation
MPS has a strong focus on developing and implementing highly automated, efficient, scalable, and technologically superior workflows across all stages of content creation. These workflows bring together an optimum combination of input file structuring and validation, XML transformation, pagination, and quality assurance (QA) processes. We are also leveraging our strong technological capabilities to significantly reduce production time for eLearning solutions. We have empowered employees at all levels in the organization to propose and deliver meaningful changes in the way we produce content.
Financial Stability and Transparency
MPS is listed on the Indian stock exchanges and had a market capitalization of around INR 892 Crores as of March 31, 2019. Our revenues have grown at a CAGR of approximately 13 percent since 2011-12. We have an active acquisition strategy that is focused on purchasing assets that will enable us to be a more meaningful partner to our customers.
Our financial stability enables us to reinvest in our platform technology, production processes, and infrastructure (IT and facilities). This reinvestment further allows us to ramp up production quickly, manage operational risk, and attract the best talent to service our customers in the best possible way.
Demonstrated Success in Change Program Implementation
MPS has successfully implemented change programs and analytics-led innovation over the 50-year legacy in publishing outsourcing and 30-year leadership status in eLearning. As a result, we have a unique vantage point: we have learned from the past, have enabled the present, and are now well positioned to define the future.
Vision and Values
MPS vision is to power the differentiation and competitiveness of our customers through smarter publishing and learning. We will transform publishing and learning by making it transparent, real time, and focused on the learning outcome. Our values of Excellence, Empathy, and Efficiency are the tools that will enable our realization of this vision.
Global Project Management
Project management is the fulcrum of our client engagements. We have achieved a delicate yet stable balance between offshore and onshore service delivery. We have a team of full-service project managers based in India as well as in the US. They work with clients for the entire duration of the project to handle the end-to-end production process and serve as a single point of contact for anything related to the project. We employ experienced project management professionals to ensure that each project meets or exceeds its financial, schedule, and quality goals.
MPS core publishing business presents massive scale opportunities. Publishers are looking to consolidate vendors, and we have a long history of emerging as the vendor of choice for some of the largest publishers. We plan to pursue the same strategy and achieve a bigger scale. Another trend that favors us is the industry movement toward Software as a Service (SaaS). The shift to cloud-based services and automation makes our suite of products attractive to clients, as we are present at every step of the value chain. Our product capabilities and smart workflows give us confidence that we will capitalize on these trends. The eLearning industry is growing at more than 10 percent per annum and presents opportunities for organic and inorganic growth. Because it is a growing industry, we plan to capture the market through smarter workflows and reduced production times and then pass on the benefits to our customers. On the inorganic side, we have an active acquisition strategy, although we will be selective. We intend to make an acquisition that adds to our competencies, maximizes return on investment, and enables synergies with the overall business.
A threat we face is the low barriers to entry in the publishing and eLearning industries. Most of the new entrants, given their small scales, do not take the responsibility of being content creators seriously; as a result, the industry could face unintended consequences. We have not seen that happen yet, but we will keep a close watch on any development in this area.
RISKS AND CONCERNS
Industry risk: We are in a digital age, and technological advances are happening at a rapid pace in the publishing and eLearning segments. Hence, to remain up to date, we have a Central Technology team that continues to look for innovations in the industry and their applicability to our businesses.
Currency risk: Currency fluctuations can have an affect on our revenues, given the rupees volatility. Hence, we take adequate foreign exchange forward covers to ensure that all operations are completed at conservative levels and that we can withstand any unforeseen developments.
Customer-concentration risk: We are dependent on a limited number of customers for the majority of our revenue. We are widening our revenue base through an increase in the number of customers and a corresponding wallet share. We have added a large number of customers through the acquisition of Tata Interactive Systems and will continue to do so through increased sales activity.
The advancement of other lower-cost countries: Some of the countries in Asia Pacific and Latin America are offering lower prices for the same sets of services, as they enjoy lower labor rates. We are therefore introducing more automation into our processes to streamline them and to reduce manual intervention to compete with such countries on prices while offering better products.
MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/INDUSTRIAL RELATIONS
MPS employed 2,536 people at the end of the year under review. We have added office locations in India, Europe, and the US through our acquisition of Tata Interactive Systems. The Dehradun Operations Center further enhanced its capabilities in FY 2018-19 by moving from delivering stages of production workflows to delivering end-to-end workflows. The centers largest operations are for journal production. Additionally, we also stepped up the transition of comprehensive processes for the books and digital services business units at the end of the financial year. The center now employs more than 1,100 associates.
Certain statements in the annual report, including this analysis concerning the companys objectives, expectations, estimates, projections, and future growth prospects, may be regarded as forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ materially. The risks and uncertainties relating to these statements include, but are not limited to, fluctuations in earnings; intense competition in publishing services and the eLearning business, including factors that may affect our cost advantage; wage increases in India; reduced demand for services in our key focus areas; and general economic conditions affecting our businesses over which the company does not have any control.