Despite disruption, Longhorn remains bullish about outlook

From taxi business to banking and publishing, disruption is happening almost everywhere.

However, the captains of industry, as Longhorn Publishers boss puts it, are on alert.

The publishing industry is betting on digital products to drive its business but government is dragging its feet on the schools’ digital literacy programme. The State has also announced a one textbook per subject policy.

Though the sector is in disruptive mood, Longhorn Publishers Managing Director Simon Ngigi is bullish that his company is alive to the changing dynamics of the sector, and ready to seize the opportunities and calm the storms that come with this disruption.

“The new curriculum is a breath of fresh air since the last curriculum was done 14 years ago. Books are outdated in some cases. We are alert to both opportunities and challenges that this presents,” he said.

A new system, 2-6-6-3, is set to replace 8-4-4 system and this will mean total overhaul of the learning materials and reorganisation of content.

According to Ngigi, the company is already armed with huge budget in the region of Sh100 million for the change and may not have to go back to the market to source for more funds.

Last year, it raised Sh533 million from a rights issue. “We were ready for a curriculum change seven years ago but it did not happen. Last year, we also earmarked some of the rights issue funds for this change,” he explained. The publisher sees this as an opportunity, riding on experience from other markets it serves, to have submissions to government and get more approvals in different subjects. Since it is a competency-based curriculum as opposed to the current knowledge-based curriculum, the MD of one of Africa’s listed publisher thinks his firm can use the experience it gained in DRC, Rwanda and Zambia when similar curricular were rolled out to leap forward.

“We expect e-learning to become integral part of competency-based curriculum and it is a space where we pioneered. We have digitised all our products and we should be able to benefit,” said Ngigi.

In DRC, government gave it work to implement the curriculum through a new packaged content while in Rwanda, it enjoyed a pass rate of over 90 per cent in its submissions. But the new curriculum also comes with what may be a challenge.

Last month, Education Cabinet Secretary Fred Matiang’i said the government will introduce a policy of one textbook per subject from elementary to secondary school.

Approved materials

This, he explained was aimed at taming a collusion between publishers, textbook sellers and heads of schools that had seen a single subject having more than six textbooks from different authors.

However, Ngigi observed that publishers, including Longhorn are unsure about its enforcement.

“There is no circular yet on how it will be done. We speculate it to mean that government would like their funding to public schools to be channelled to one book which it approves,” he said.

He however opines that parents and private schools will still be at liberty to buy other books for as long as materials are approved by Kenya Institute of Curriculum Development.

Public schools account for about 75 per cent of learning institutions in the country, leaving just a quarter in the hands of private investors.

“We still have parental and private school book buyers who spends about three times more than the government. I don’t see the government banning private schools and parents from voluntarily buying approved materials,” said Mr Ngigi.

He adds that the group is diversified enough to take full advantage of the two other areas should Dr Matiangi’s directive shrink revenues from government’s buying.

In addition, digital books and tertiary institution books are still open to generate revenues. But even with his bullish outlook, last week, the company announced that his firm has begun a restructuring process following a thorough analysis of the business operations model, in line with the ‘emerging challenges” in the industry.

“The disruption has necessitated the rethinking of our business model and segmentation to enhance our competitive edge. The process will involve a staff rationalisation and re-alignment exercise,” he said.

He told Financial Standard that the move was aimed at cutting costs as it responds to the piracy and the 16 per cent value added tax that has also impacted negatively on sales.

Piracy remains a threat to the sector despite Kenya Copyright Board being in place to fight the vice. Mr Ngigi observes that it costs publishers about a quarter of their annual revenue yet a maximum penalty of Sh800,000 is still low to incentivise the vice.

He said publishers were optimistic that the government would scrap VAT on books in the 2017-18 financial year but this attempt failed despite being “very close” to getting the reprieve. “The tax means that if the government gives Sh10 billion to schools, it takes away Sh1.6 billion and therefore the number of text books bought reduces,” said Ngigi .

In an industry that has more than 107 entities registered by Kenya Publishers Association, competition to get approval from KICD has been on the rise.

Publishers are required to make submissions to government and wait for approval. Only the top six books selected are then taken to the market as publishers embark on prompting their books in schools to win the hearts of heads of schools.

Commenting on the government’s digital programme whose continuity is pegged on the August elections, Ngigi noted that its Sh150 million investment is now eyeing more business from private schools.

“We have pursued the private side following the stagnation of government’s programne and we have seen 100 per cent increase in digital sales,” he said. “However, big money will only come in when government comes in.”

Revenue streams

Most schools now have electricity but lack of devices meant that the programme drags on. Over a year since its rights issue, Mr Ngigi said the money has helped the company to strengthen its muscles.

“We managed to buy Law Africa which is a market leader in tertiary books of law,” he said.

The publisher now has 92 per cent stake in Law Africa as it hopes to grow its fortunes in tertiary books’ market.

Acquiring the law publisher has given it a share in the tertiary market. According to Ngigi, the firm is eyeing new tertiary segments such as accounting, agriculture and medicine to help diversify revenue streams.

Publishing books for schools calls for proper timing of academic calendars.

Mr Ngigi explained that since this is a factor of government pronouncements, sometimes it leads to a working capital mismatch.

But thanks to part of the money raised in the Sh533 million rights issue last year, the managing director says the cash mismatch at the listed firm has been leveled out.

Its money was sometimes being tied up in schools especially with delays from government disbursement. The firm has managed to rise above the challenges in the sector to break into DRC, Zambia and Malawi.

From last September, it begun selling books in Senegal, their first francophone market to serve. The publisher is heading to Burkina Faso in the next two months to deepen its presence in French-speaking countries.

“These markets are emerging and we see a lot of opportunities. We think that the return on such investments on a three-year cycle will be as per our projections,” he said. The firm’s next destination is Zambia, followed by Tanzania.