Total revenue at Random House fell to 1.78 billion euros in 2003, from 2.0 billion euros in 2002, and operating EBITA dropped to 147 million euros from 168 million euros. Parent company Bertelsmann attributed the decline almost entirely to the strength of the euro compared to the dollar. Excluding currency changes, sales and earnings at Random "increased slightly" in the year, from $1.9 billion to $2.0 billion, Bertelsmann said. In North America, Random House was able to increase its book sales, year over year, achieving its best year-end holiday book sales ever. Strong cost-management contributed to keep profitability stable and to counteract the growing pressure on margins.
Total revenue for Bertelsmann fell to 16.8 billion euros in 2003 from 18.3 billion euros in 2002, although operating EBITA rose 20%, to 1.23 billion. Currency changes plus the sale of Springer were the main factors in the sales decline.
In his letter to Random employees, chairman Peter Olson emphasized the publisher's performance in dollars. "The sell-through of our books at retail is the prevailing measurement of our overall great financial strength, particularly in our English-language markets in 2003," Olson said. "By that measure, Random House of Canada and the Random House Group, comprising the U.K., Australia, New Zealand, and South Africa, had record years." In the U.S., which accounts for about 66% of total Random sales, all seven publishing divisions "were very profitable," Olson said.
According to Olson, the momentum of 2003 has carried into the first quarter. In North America, Olson said, reorder business for frontlist and backlist and the number on titles on the bestsellers lists, "are up significantly over the same period a year ago." He said that given the "promising editorial line-up, I believe we are on course to make our full-year fiscal targets."
Revenue in the direct group, home to Bookspan, fell to 2.3 billion euros last year from 2.7 billion euros in 2002. The group, however, swung to operating EBITA of 4 million euros from a 150-million euro loss in 2002. Bertelsmann said a focus on core businesses and the withdrawal from "pure e-commerce"—the sale of its stake of Barnes & Noble.com and BOL in the Netherlands—plus an increase in local management all contributed to improving the bottom line. The revenue decline was attributed to the weak dollar, a weak economy and "consumer reluctance." Bertelsmann noted that its book clubs in France, Spain and the Netherlands and Bookspan had "comparatively high income" last year, and that the "great majority" of its book clubs were profitable in 2003, although its German and British clubs had not yet achieved break-even. After a weak first half of the year, Bookspan's sales were "brisk" in the final six months, the company reported. Book clubs accounted for 83.5% of direct group sales with the balance generated by music clubs. Approximately 31% of the group's sales are in the U.S.
In remarks at a press conference announcing the results and in its annual report, Bertelsmann executives said they were looking to expand through acquisitions and internal growth. In the publishing unit, tapping into new markets and opening up new countries is a top priority, the company said. The direct group will look at expanding into Eastern Europe and China. And while acquisitions are possible by Random House, the company is not engaged in any current discussions, Olson said.
The possible Bertelsmann IPO has been postponed until May 2006 at the earliest, executives said. Speculation had been that the IPO would occur some time in 2005.