1Pendrainllwyn
For those interested in finances.
In reaction to some of the comments I have read on FS Devotees I had a look at FS's financial accounts filed with Companies House for the last 10 years.
2014 Profit 27,740 Return on Equity (ROE) 0.4%
2015 Loss (1,536,787)
2016 Loss (357,980)
2017 Loss (992,931) (See note 1)
2018 Loss (320,497)
2019 Loss (213,242)
2020 Profit 285,882 ROE 6.3%
2021 Profit 2,725,569 ROE 45.2% (See note 2)
* The business was sold to employees on 1/12/2021 *
2022 Profit 1,498,744 ROE 18.4%
2023 Profit 775,861 ROE 8.4%
FS also lost money in 2012 and 2013. 7 years of losses in the 8 years from 2012 and 2019 was unsustainable. Something had to change.
FS enjoyed very healthy profits in 2021 and 2022, presumably aided by the pandemic, and if those years were to be the norm going forward then this would be a very attractive business and might suggest consumers were not top of mind. Revenues were down 12.4% in 2023 (expenses were marginally up). 2023 results were perhaps impacted by high inflation eating into consumers pockets. So it's not straightforward forecasting what the run rate is going forward. Is 2023, where ROE is OK but not exciting, a more likely indicator of future profits than 2021 and 2022? Please note that in 2023 the company had a small negative tax charge indicating underlying profits and ROE were actually lower.
Gross profit margins in 2023 were 71.5%. In the 7 years prior to that margins were in the 64 to 69% range (in all years but 2017 when they were lower) so that does suggest FS raised prices last year which has often been commented on here. The big 50% off sale in January will dampen gross profit margins in 2024.
It seems to me that the business was either mis-managed or consistently under-pricing their books in the past or quite possibly both. Well done to those who bought gorgeous books at good prices from a non-profitable company in years gone by. Alas, I was not one. The business is financially better run now. Today's prices may well be the price we need to pay for a sustainable business. Have they gone too far the other way? Too early to tell I suspect but it doesn't look that way to me if 2023 is indicative.
FS had 43 employees at the end of 2022 and 2023 and the average employee received salary of GBP 58,360 which doesn't sound excessive for a London based team. The average salary was up 2.67%. Far from excessive in a high inflation environment.
An employee ownership trust owns the company but no dividends have been paid to these employees since ownership changed so they are not making out that way either. Indeed the only dividend paid in this 10 year period (a very substantial dividend) was in 2017 post the sale of the freehold property (see Note 1).
Note 1. Actual profits were 7,979,171. However, FS sold Eagle Street freehold property for an exceptional profit of 10,429,500. If I understand it correctly, taxable gains of 1,457,398 were incurred on selling the property. Excluding the net profit 8,972,102 from this sale they lost 992,931 from their ongoing book selling business. It is this adjusted figure I have shown above. Apologies if I have calculated it incorrectly.
Note 2. Profit before tax in 2021 was 2,231,126 but there was a negative tax charge of 494,443 which inflated profits and ROE. If tax of 20% had been charged then profits would have been 1,784,900 and ROE 19.2% which is more in line with 2022.
Happy to be corrected on any of the above.
In reaction to some of the comments I have read on FS Devotees I had a look at FS's financial accounts filed with Companies House for the last 10 years.
2014 Profit 27,740 Return on Equity (ROE) 0.4%
2015 Loss (1,536,787)
2016 Loss (357,980)
2017 Loss (992,931) (See note 1)
2018 Loss (320,497)
2019 Loss (213,242)
2020 Profit 285,882 ROE 6.3%
2021 Profit 2,725,569 ROE 45.2% (See note 2)
* The business was sold to employees on 1/12/2021 *
2022 Profit 1,498,744 ROE 18.4%
2023 Profit 775,861 ROE 8.4%
FS also lost money in 2012 and 2013. 7 years of losses in the 8 years from 2012 and 2019 was unsustainable. Something had to change.
FS enjoyed very healthy profits in 2021 and 2022, presumably aided by the pandemic, and if those years were to be the norm going forward then this would be a very attractive business and might suggest consumers were not top of mind. Revenues were down 12.4% in 2023 (expenses were marginally up). 2023 results were perhaps impacted by high inflation eating into consumers pockets. So it's not straightforward forecasting what the run rate is going forward. Is 2023, where ROE is OK but not exciting, a more likely indicator of future profits than 2021 and 2022? Please note that in 2023 the company had a small negative tax charge indicating underlying profits and ROE were actually lower.
Gross profit margins in 2023 were 71.5%. In the 7 years prior to that margins were in the 64 to 69% range (in all years but 2017 when they were lower) so that does suggest FS raised prices last year which has often been commented on here. The big 50% off sale in January will dampen gross profit margins in 2024.
It seems to me that the business was either mis-managed or consistently under-pricing their books in the past or quite possibly both. Well done to those who bought gorgeous books at good prices from a non-profitable company in years gone by. Alas, I was not one. The business is financially better run now. Today's prices may well be the price we need to pay for a sustainable business. Have they gone too far the other way? Too early to tell I suspect but it doesn't look that way to me if 2023 is indicative.
FS had 43 employees at the end of 2022 and 2023 and the average employee received salary of GBP 58,360 which doesn't sound excessive for a London based team. The average salary was up 2.67%. Far from excessive in a high inflation environment.
An employee ownership trust owns the company but no dividends have been paid to these employees since ownership changed so they are not making out that way either. Indeed the only dividend paid in this 10 year period (a very substantial dividend) was in 2017 post the sale of the freehold property (see Note 1).
Note 1. Actual profits were 7,979,171. However, FS sold Eagle Street freehold property for an exceptional profit of 10,429,500. If I understand it correctly, taxable gains of 1,457,398 were incurred on selling the property. Excluding the net profit 8,972,102 from this sale they lost 992,931 from their ongoing book selling business. It is this adjusted figure I have shown above. Apologies if I have calculated it incorrectly.
Note 2. Profit before tax in 2021 was 2,231,126 but there was a negative tax charge of 494,443 which inflated profits and ROE. If tax of 20% had been charged then profits would have been 1,784,900 and ROE 19.2% which is more in line with 2022.
Happy to be corrected on any of the above.
2billburden
I appreciate this post. Very interesting data.
3wcarter
>1 Pendrainllwyn:
Thank you, very interesting.
Thank you, very interesting.
5Son.of.York
Very interesting, thank-you.
7LBShoreBook
>1 Pendrainllwyn: Am I reading this correctly that even in the boom year of 2021, profit was less then 3M pounds? Talk about a business with thin margins.
8Pendrainllwyn
>6 LinkAiris: The transition to employee ownership is also an intriguing development, and it's commendable that dividends have not been paid out to employees despite the change in ownership. This suggests a commitment to reinvesting profits into the company for future growth and stability.
I hope you are right. That is my read too. Still, early days under the new ownership.
>7 LBShoreBook: Am I reading this correctly that even in the boom year of 2021, profit was less then 3M pounds? Talk about a business with thin margins.
Yes. Indeed, as note 2 highlights, if it were not for a negative tax charge that year, profits would, I calculate, have been around 1.8M. Of course this is a small business. One common approach is to look at the profit in relation to the amount of equity capital invested in the business. In 2021 that ratio gave a 19.2% return. In my experience far more companies earn less than 19.2% on equity than earn more. But of course 2021 was an exceptional year for FS.
Regarding margins, I don't have the data to make all the necessary comparisons but in my experience FS's gross profit margins of 64-72% are good. There are industries with better margins and many with worse. Gross profit margins look at how much profit FS has from selling a book after deducting the direct costs of producing that book, for example by acquiring publishing rights, paying fees to the artist, printer and binder etc.
FS has attracted much recent comment by selling books with tipped in signatures. I imagine the gross profit margin for these signatures will be very high as direct costs shouldn't be too much more than whatever they are paying the author/artist for their signature.
Operating profit margins look at how much profit FS has after also deducting other costs such as leasing offices and warehouses, computers and software, developing their website, packaging and postage, salaries and pension of administrative staff etc etc. FS's operating profit margins have varied a lot by year. In many years they have lost money and had negative margins. In 2023, operating profit margins were 5.6%. In my experience that's at the lower end.
There are more profitable businesses than publishing books. But do they give as much pleasure?
Please note, these are just my observations. I mean FS no harm by any of them.
I hope you are right. That is my read too. Still, early days under the new ownership.
>7 LBShoreBook: Am I reading this correctly that even in the boom year of 2021, profit was less then 3M pounds? Talk about a business with thin margins.
Yes. Indeed, as note 2 highlights, if it were not for a negative tax charge that year, profits would, I calculate, have been around 1.8M. Of course this is a small business. One common approach is to look at the profit in relation to the amount of equity capital invested in the business. In 2021 that ratio gave a 19.2% return. In my experience far more companies earn less than 19.2% on equity than earn more. But of course 2021 was an exceptional year for FS.
Regarding margins, I don't have the data to make all the necessary comparisons but in my experience FS's gross profit margins of 64-72% are good. There are industries with better margins and many with worse. Gross profit margins look at how much profit FS has from selling a book after deducting the direct costs of producing that book, for example by acquiring publishing rights, paying fees to the artist, printer and binder etc.
FS has attracted much recent comment by selling books with tipped in signatures. I imagine the gross profit margin for these signatures will be very high as direct costs shouldn't be too much more than whatever they are paying the author/artist for their signature.
Operating profit margins look at how much profit FS has after also deducting other costs such as leasing offices and warehouses, computers and software, developing their website, packaging and postage, salaries and pension of administrative staff etc etc. FS's operating profit margins have varied a lot by year. In many years they have lost money and had negative margins. In 2023, operating profit margins were 5.6%. In my experience that's at the lower end.
There are more profitable businesses than publishing books. But do they give as much pleasure?
Please note, these are just my observations. I mean FS no harm by any of them.
9cronshaw
>8 Pendrainllwyn: I certainly can't think of any other business producing a product that affords such pleasure without breaking a law or requiring a battery.
10ian_curtin
>1 Pendrainllwyn: Good analysis, thank you for taking the time. A useful context for some of the discussions on this forum (and myth-busting some of the more outré claims / assumptions that are frequently made by people unhappy with pricing etc.).
11LondonLawyer
>6 LinkAiris: ChatGPT has entered the conversation…
12LBShoreBook
>8 Pendrainllwyn: Gross Profit Margins are somewhat interesting for an investor but Net Income and Cash Flow are bottom line metrics that are more telling of whether this company makes money. That is a lot of work and effort annually for a $3M profit in a good year (IMO). Reinforces that publishing is not the road to riches, notwithstanding the hyperbole on signed book plates and moral denouncements of FS's business model.
13What_What
Sobering analysis, and indeed, congratulations to those who purchased vastly underpriced books in the past, almost to the point of bankrupting the company. It's not an exaggeration to say that those who want the FS of old to come back again are indeed wishing for no FS at all.
14A.Godhelm
>13 What_What: Strange spin on the issue. It's not the customer's responsibility to balance the books and provide attractive titles. FS celebrated 75 years recently so clearly they managed to function as a smaller membership driven company quite well, for a very long time.
By the same numbers you could just as well say it was the people buying the "underpriced" books keeping the company alive at all - what's a publisher with no customers?
What this does show is that they had a business model that wasn't working out, but we don't gain a granular insight enough to determine why. Bad choices of titles, pricing, advertising, print runs, overhead, and whatever hundred other issues are part of the practical running of the company? The general analysis on the forum (in my estimation) is a turn to more popular titles and more social media driven marketing, but that's been ongoing longer than the big change in loss vs profitability these last years. The recent pricing changes were steep, but in an environment of skyrocketing costs in general and in that context might not be enough to explain such a turnaround. The big notable change coinciding with the change in fortunes was becoming an employee owned business, whatever that implies I'm not sure.
I'm happy to see them turning a profit and hope they have another 75 years ahead. Won't keep me from hoping for a good deal on a book, or having opinions about their titles, that's just part of the dance of supply and demand.
By the same numbers you could just as well say it was the people buying the "underpriced" books keeping the company alive at all - what's a publisher with no customers?
What this does show is that they had a business model that wasn't working out, but we don't gain a granular insight enough to determine why. Bad choices of titles, pricing, advertising, print runs, overhead, and whatever hundred other issues are part of the practical running of the company? The general analysis on the forum (in my estimation) is a turn to more popular titles and more social media driven marketing, but that's been ongoing longer than the big change in loss vs profitability these last years. The recent pricing changes were steep, but in an environment of skyrocketing costs in general and in that context might not be enough to explain such a turnaround. The big notable change coinciding with the change in fortunes was becoming an employee owned business, whatever that implies I'm not sure.
I'm happy to see them turning a profit and hope they have another 75 years ahead. Won't keep me from hoping for a good deal on a book, or having opinions about their titles, that's just part of the dance of supply and demand.
15DanielOC
Membership era FS and FS today are two different animals. Old FS books were for readers who likely already knew the well known classics and famous titles and were looking for something more recherche. The new FS has narrowed the scope, like a fast food menu, to fit popular taste and cast a wider net, looking to bag the popular history buff, the genre fan, the casual beach book reader, and the fandom fueled book-as-shelf-tchotchke buyer. This change is undoubtedly a survival tactic in a marketplace where lit aesthetes are scarce and all are consumed by digital content. Good luck to the new FS and let’s hope they still find a place for a good book now and then.
16RRCBS
>15 DanielOC: meh, I have hundreds of older Folios and still think that they produce worthy books today (Half a Yellow Sun, the Mantel books come to mind). I don’t like all of the books they produce now, which is good because otherwise I would be making some tough choices on which ones to buy! I was a member when that was a thing but never get anything was special about it and to me it was just fluff. Have always been grateful for the books.
17HonorWulf
Someone posted Folio's year end 2024 financials on Facebook. Key numbers:
Gross income up 16% to 15.554M from 13.374M
Gross profit up 14% to 10.855M from 9.556M
Net profit up 88% to 1.461M from 0.776M
Overall, net profit was 9.4% on gross income, versus 5.8% in 2023. This is still small, in my opinion, but moving in the right direction.
Biggest expense is distribution, which was up 7% to 5.420M from 5.057M, and accounts for 35% of their gross income expenses (hence the recent price increases).
Gross income up 16% to 15.554M from 13.374M
Gross profit up 14% to 10.855M from 9.556M
Net profit up 88% to 1.461M from 0.776M
Overall, net profit was 9.4% on gross income, versus 5.8% in 2023. This is still small, in my opinion, but moving in the right direction.
Biggest expense is distribution, which was up 7% to 5.420M from 5.057M, and accounts for 35% of their gross income expenses (hence the recent price increases).
18LT79
Interesting to see it from the other side. I think the ones complaining (including myself sometimes) are the ones that have looked elsewhere and found better value for their money with other publishers. I still buy the occasional FS book but not as often as I used to for this reason.
19Macumbeira
>15 DanielOC: you are correct. But if you look at their financial results, they took the right direction.
