September 3 – September 10, 2009 Edition

Random House Revenues Dip in First Half

Gütersloh/Authorlink News/08/31/09— Random House, the world’s largest trade book publishing group owned by German-based Bertelsmann, registered a decline in first-half revenues and operating results due to continuing stresses in the economy and inventory reductions by major bookstores in the U.S.

The news came as part of parent company Bertelsmann’s financial report for the first half of 2009. In the face of expected advertising and spending slowdowns in many countries, the group’s revenues and operating income fell. First-half consolidated company revenues for continuing operations reached €7.2 billion, against €7.7 billion in a strong equivalent period the previous year. Operating EBIT fell to €475 million (H1 2008: €685 million.) A high number of one-time costs resulted in an overall net loss of €-333 million (H1 2008: €372 million).

Random House sales fell from $766 million in June 2008 to $734 million in the 2009 period, a drop of about 4%.

In a memo to staff members August 31, Random House CEO Markus Dohle described the overall six month period as, “very tough.“

“ With the decline in consumer spending we had to fight harder for every sale, as did our competitors. Our customers implemented tighter inventory controls, resulting in significantly higher returns and fewer copies ordered, on both initials and reorders, which hurt frontlist as well as backlist sales.

“ Our Stieg Larsson books are a phenomenon on two continents. In the U.S. we have shipped close to two million copies in all formats of the first two volumes of his Millennium trilogy. THE GIRL WHO PLAYED WITH FIRE is the first novel in translation in over twenty-five years to become a number one New York Times hardcover fiction bestseller. In Germany all three of the Larsson volumes are runaway bestsellers in hardcover and paperback with more than three-million copies sold. Our Random House Group U.K. colleagues placed ten number one titles on the Sunday Times bestseller lists this June and July, including SWIMSUIT by James Patterson and Maxine Paetro, GENESIS by Karin Slaughter, and SAPPHIRE by Katie Price. In Spain Random House Mondadori sold 400,000 copies this summer of LA MANO DE FÁTIMA by Ildefonso Falcones.

“ In North America we are also benefiting from such hugely successful fiction trade paperbacks as THE GUERNSEY LITERARY AND POTATO PEEL PIE SOCIETY by Mary Ann Shaffer and Annie Barrows (nearly one million copies in print since May); the Pulitzer Prize–winning OLIVE KITTERIDGE by Elizabeth Strout; THE BOOK THIEF by Markus Zusak (back at #1); and, in Canada, THE FLYING TROUTMANS and THE TIME TRAVELER’S WIFE by Miriam Toews and Audrey Niffenegger, respectively. Jillian Michaels’ MASTER YOUR METABOLISM continues as our longest-running 2009 New York Times hardcover bestseller. Pat Conroy’s SOUTH OF BROAD has almost 700,000 copies in print since its publication three weeks ago. First published nearly fifty years ago, Julia Child’s MASTERING THE ART OF FRENCH COOKING is selling out across North America, thanks to its presence in the movie Julie & Julia.

“. . .even with our retailers’ tremendous support for these many great books of ours, and our bookselling momentum from this summer, we must face reality about the fall season: The competition in the marketplace from non–Random House titles will be more fierce and unrelenting than ever. And the impact of the ongoing recession on potential consumer book buying is still a big concern for all of us. In our efforts to maximize the selling power of each of our fall titles we can take nothing for granted.

“But our fiscal year is not all gloom and doom. Our six-month results only partially reflect the current big turn in the right direction for our business — our strong sales performance overall during June, July, and August in our territories. Our monthly numbers are rising, thanks to some of our biggest-selling titles of 2009.“

Bertelsmann Overview

Bertelsmann’s extensive, international cost-saving initiative and the restructuring of the U.S. publishing groups put in place last year partially offset losses. Random House placed 140 titles on the “New York Times” bestseller lists in the first six months of the year, and in the U.K. accounted for one quarter of all bestsellers listed in the “Sunday Times.” In the German-speaking regions, the Verlagsgruppe Random House publishing group had another strong first half year, dominating the national nonfiction bestseller lists. Random House acquired the highly regarded California publishing house Ten Speed Press. The book group significantly expanded its digital-publishing leadership, recording strong increases in sales of its e-books in the U.S., U.K., and Germany. Random House formed new film and TV production companies for children’s and family entertainment in the U.S. and U.K.

The full effect of Bertelsmann’s cost-saving measures on financial results will be reflected during the second half of the year. Some positive signs have been seen in the services sector, which reports a rise in demand for outsourcing because of the increased pressure among many companies to streamline.

Bertelsmann CEO Hartmut Ostrowski, said: “Our strict cost discipline is beginning to have a significant positive financial impact. Every division, including Group headquarters has systematically reviewed all costs and structures. The packages of measures that were put together as part of this program are extremely wide-ranging and varied and will save us over €900 million this year alone. We are resolutely countering the decline in advertising-related revenues. The top priority at this point is to stabilize Bertelsmann’s existing businesses, preserve liquidity, and safeguard the operating result. In this way, we will continue to develop our company and create the conditions for future growth.”

Thanks to the many measures undertaken, the advertising crisis had less of an effect on Bertelsmann’s key indicators in the second quarter than in the first. Accordingly, return on sales rose strongly from 3.3 percent in the first quarter to 9.8 percent in the second.

The half-year average was 6.6 percent. This development is underpinned by high cash flows from operations. “The second half of the year will still see cost cuts, but at present we expect that the programs we introduced will be sufficient to steer Bertelsmann safely and successfully through this difficult economy,” said Ostrowski.

Bertelsmann CFO Thomas Rabe added: “Financially, Bertelsmann is on safe ground. Our solid financial management has paid off in the first half: we have good liquidity and adequate credit lines available to us. For the full year, Bertelsmann continues to forecast a decline in revenues and operating profit. The extent of year-on-year change will be determined by the severity and duration of the cyclical downturn.”

As of 30 June 2009, Bertelsmann had 103,452 employees worldwide (December 31, 2008: 107,154).