Bertelsmann: Penguin Random House merger 'paying off'

Bertelsmann: Penguin Random House merger 'paying off'

Bertelsmann has said that revenues "normalised" at its book publishing businesses in 2013 after a Fifty Shades dominated 2012, with the group focused on integrating Random House with Penguin after the two publishers closed their merger in July. The company also announced a significant step-up in its plans for building a $1bn education business, with the launch of a new investment fund.

Bertelsmann's book publishing interests, including Random House, RH Germany, and a half-year of Penguin, reported revenue of €2.7bn. Total sales were up 23.9% on Random House's previous year, thanks to the inclusion of Penguin. However on a like-for-like basis excluding Penguin, sales and profits fell after 2012 when the company had "exceptional success" with the Fifty Shades trilogy.

At a press briefing held in Berlin today Bertelsmann chairman and c.e.o. Thomas Rabe described the performance as a "normalisation" of revenue after Fifty Shades, adding that Random House had still reported its "second best year ever". Operating earnings before interest, tax depreciation and amortisation (EBITDA) rose to €363m at the publishing businesses, compared with €352m in 2012. However because of the growth in the topline its profit margin was 13.7%, compared with 16.4% in 2012. Penguin Random House chief executive Markus Dohle called it a "successful year". He added: "This impressive performance was even more remarkable during what was such a transformative year for Penguin Random House, and the publishing industry in general."

Bertelsmann said PRH sold 100m ebooks in 2013, with digital accounting  for a double-digit percentage of the group's annual revenue, and also "for the first time" a double-digit proportion of its German publishing business. In total Bertelsmann said it had sold 700m books in 2013.

Rabe stressed the focus had been "to integrate PRH, while at the same time operating at the high levels those companies were operating at before the merger". Though direct comparisons with the previous year at Random House or Penguin were not possible, Rabe added: "We are very satisfied with creative and economic development of PRH, and we can say the merger is paying off." He said growth opportunities would come from emerging markets, highlighting PRH's recent acquisition of the trade book business of Santillana, which operates in Spain, Portugal, and Latin America, including Brazil.

Bertelsmann also reiterated its intention to become an education player, including the launch of a new investment fund University Ventures Fund II, which will invest a "nine-digit sum" in a portfolio of education companies. Rabe said education would "become a third pillar for Bertelsmann", suggesting that it planned to build a $1bn business in this area, and that this would also include "direct investment". When questioned about whether this would put it up against Pearson, with which it part owns Penguin Random House, Rabe replied "yes there will be some competition with Pearson, but nothing wrong with that". But he added that its focus would be on "low-cost online degree programmes, educational services and medical education".

The company recently announced the launch of a €30m education technology investment fund in Brazil.

Overall at Bertelsmann revenue inched forward to €16.4bn, though on a like-for-like basis this represented a fall of 2.8%. It generated operating earnings before interest of €1.75bn, compared with €1.73bn a year earlier. Rabe added: "Our figures demonstrate our company's economic capacity and solid financing", adding that it was on track to deliver revenue of €20bn by 2017.

At the press conference, Rabe was forced to deny a report in the German newspaper Handelsblatt saying he had fallen out of favour with the Bertelsmann board and that his contract would not be renewed. "Simply accept it is untrue," he told journalists. Christoph Mohn, chairman of the Bertelsmann Supervisory Board, also issued a statement denying the report.