Commenting on the merger of Random House and Penguin, Thomas Rabe, CEO of RH parent company Bertelsmann, wrote in the company’s annual report that the “formation of Penguin Random House is the best possible path to new growth in the book industry—and to new growth for Bertelsmann.” To keep PRH growing, Rabe promised that Bertlesmann will continue to invest in the company “on a much more significant scale—in diverse content, in the development and support of authors, in the entire physical and digital spectrum of book acquisition, production, distribution and marketing as well as in rapidly growing emerging markets.” Indeed, Bertelsmann expanded PRH’s presence in Spain and Latin America in late March with the purchase of the trade book business of Santillana Ediciones Generales.
There was little for Rabe not to like in PRH’s results for 2013, which included the full year of sales and earnings from Random House and results for the final six months of the year from Penguin. Total sales hit €2.65 billion ($3.66 billion, at current exchange rates), up 23.9% compared to full-year sales for Random House in 2012. Operating EBIT fell 4.9%, to €309 million. If Penguin sales for the second half of the year were excluded, total 2013 revenue would have declined 10.5%, reflecting the tremendous success of Fifty Shades the previous year; the trilogy sold over 70 million copies worldwide in 2012 (in all formats) and seven million in 2013. Despite the decline in EBIT—which included some one-time charges related to the merger—the PRH operating margin of 11.6% in 2013 was better than Random House’s margin in any previous year except 2012, when it posted a 15.2% margin.
Rabe said that the Penguin deal is in keeping with Bertelsmann’s push to accelerate its digital growth. In 2013, PRH sold over 100 million copies of e-books and had a catalogue of over 77,000 e-book titles. Rabe also noted that the merger increased Random House’s geographic footprint. As a result, it reduced the share of revenue contributed by Random House’s traditional major markets—a trend that will certainly accelerate with the purchase of Santillana. In 2013, the U.S. accounted for 53.4% of PRH revenue (about $1.95 billion), whereas it accounted for 54.8% of Random House’s revenue in 2012. The share of sales last year from other European countries rose to 21.1% from 19.1% in 2012, and the share from the rest of the world rose to 15.3% from 12.7%.
Given the momentum that PRH has had since the completion of the deal, Rabe told shareholders in the annual report that “the formation and first half-year of the new company is a huge success story, of which we are very proud.”