Librarians and publishers alike were dismayed to read about financial troubles for Swets in a report published on Monday of last week in the Dutch financial paper Het Financieele Dagblad. Under the alarming headline, "Swets at Brink of Ruin After Accounting Fault," the article described accounting problems in the firm and stated that the company no longer met the credit conditions of its bank. The staff at Swets was quick to respond with reassuring statements but asked the information community to wait for details until a scheduled board meeting, held on Friday, Sept. 24, 2004. At that meeting, Swets did indeed receive the required capital injection of 45 million Euros (about $55.2 million U.S.) from shares placed privately with existing shareholders, primarily two venture capital groups—NPM Capital and Compagnie Benelux Paribas (Cobepa).In its formal press release following the board meeting (http://www.swets.com/web/show/id=42839/contentid=352), Royal Swets & Zeitlinger Holding NV reported approved results for 2003, with sales of 986 million Euros, an operating profit of 8.5 million Euros and a net loss after exceptional items of 7.3 million Euros. Previous sales for 2002 were reported at turnover of 1.2 billion Euros and a net profit of 30.8 million Euros. However, these figures must now be re-examined, along with those of 2001.
In the press release, Paul de Bruin, chairman of the supervisory board, wrote: "The capital injection of 45 million Euros by the shareholders is a clear vote of confidence in the company. We will accelerate our investments in e-services and we will also use these funds to restructure the company as part of our continuous drive to improve efficiency."
Fraud was not a factor in the accounting errors, according to Jan-Willem Baud, chairman of the board of supervisory directors and director of NPM Capital, who was quoted in the Het Financieele Dagblad article. He indicated that finance director Eelco de Boer had "stumbled across errors of his predecessor after taking up office last year."
Many in the industry have observed that news of financial concerns at Swets is not new. Not too long ago, the company, which was being offered for sale to international high-risk venture capitalists with a price tag of hundreds of millions, saw at least one buyer, Candover, pull out at the last minute. Swets took itself off the market in February 2003.
Worries About a Divine/RoweCom Repeat
The comparisons to the Divine/RoweCom debacle cannot be avoided, though they do not seem to be warranted, at least at present. Swets' subscription business is generally assumed to be sound, though how profitable is not well-known. Most agree that management of the firm can be tightened, but what firm can we think of to which this statement does not apply?
The challenges of surviving as a middleman in an increasingly Internet-driven publishing community are surely a part of the picture. It is significant to see that the board press release speaks of further investments in e-services, coupled with restructuring and improved efficiency. The Het Financieele Dagblad article noted that Swets' attempts to "become more electronically active themselves have not panned out as predicated by management." This comment might be directed at the company's continued investment in systems development for its Extenza Electronic Publishing Solutions, along with the new warehouse recently built for Extenza Turpin.
Cash flow is assumed to be at the center of the real problems, with the assumption that, upon discovery of the accounting discrepancies, the company was then operating outside the terms of its bank agreements. The bank likely demanded an immediate and improved cash position or working capital position by the 45 million Euro figure.
The existing board has made strong statements of support, the capital infusion is accomplished, and management changes are expected and likely to be announced very soon. In the end, the difference between Divine/RoweCom and Swets will rest on the shoulders of "Trust" and just how much of that precious commodity the library and publishing communities will place with the company.
The Company
Royal Swets & Zeitlinger is a global publishing and information services group operating in 23 countries with a staff of approximately 1,200. Corporate headquarters are located in Lisse, the Netherlands. Its activities are grouped into four divisions: Extenza, Swets Information Services (the subscription business), Swets Farrington Document Services, and Swets Backsets Service. Royal Swets & Zeitlinger is not listed on the stock exchange. The shares are owned by founding family members and venture capital companies.
