Although worldwide sales at Random House fell 4.3% in 2011, the company posted its highest earnings and operating margins in at least five years. EBIT (earnings before interest and taxes) rose 6.9%, to 185 million euros, with an operating margin of 10.6%, a full percentage point higher than 2010. Between 2007 and 2011, sales on a reported basis fell 4.8%, while operating EBIT jumped 35.0%. Cost cutting, including consolidating office space in Random’s New York headquarters, and lower returns due to higher e-book sales contributed to the higher profits in 2011. The sales decline was due to a combination of the negative impact of foreign exchange and a decline in print sales.
Profit growth was strongest in the U.S., although America accounted for slightly less of Random’s total sales in 2011 than in 2010. According to parent company Bertelsmann’s 2011 annual report, the U.S. accounted for 53.8% of revenue last year, about $968 million based on the $1.29 exchange rate at the end of 2011. In 2010, the U.S. generated 54.9% of sales. For the first time, Bertelsmann reported that 1.1% of total revenue came from “services,” which represents the fee income from Random House Group UK’s distribution business.
At the end of 2011, RH had almost 40,000 e-book titles in English, Spanish, and German, and e-books represented about 15% (262 million euros) of sales.
In his letter to employees, RH chairman Markus Dohle observed that with its 2011 performance, RH “reinforce[ed] our position as one of our parent company’s most dependable profit centers,” adding, “Random House is in very good shape for the future. We have the financial and creative resources to further develop and invest in our business.”
Dohle outlined four areas of focus for RH, with the first being to ensure a “healthy and diversified physical marketplace” by continuing “to invest in a variety of initiatives that strengthen our supply-chain infrastructure and enable greater efficiencies for our brick-and-mortar retail partners.” A second priority is to “champion a digital marketplace where multiple retailers sell our books,” Dohle wrote.
Even as it looks to strengthen ties to its retail partners, Dohle wrote that the company will improve its direct-to-consumer connections by leveraging its technology and sales, marketing, and publicity experience “to bring our books where readers are and drive awareness across all formats and channels.” The publisher’s fourth priority is to expand its “author-centric services,” Dohle added. “As a full-service publisher, we support our authors at every step in the publishing process—but we are committed to doing even more.”
Random House Financial Results 2007–2011
(in £ millions)
|Return on sales||9.4%||7.9%||7.9%||9.5%||10.6%||–|
Source: Berlelsmann, Publishers Weekly