Clarivate Report Proquest Financials: Raise $1Billion in Equity

On May 17, Clarivate announce a proposed deal to acquire Ann Arbor based Proquest.  (See here).  In the last few days, Clarivate has reported more details including 2020 full year financials for Proquest.

Here is a summary:

• Assets of $1.3B with $629mm in goodwill
• $1B in long term debt
  
• Revenues of $862mm
• Operating Income of $84mm
• Net Income of $3.4mm (Includes unrealized loss of $31mm)
• Cash provided by operations $199mm
• Net cash expended on acquisitions of $225mm
• During 2020, the Company distributed $168.3mm to ProQuest Holdings, primarily related to distributions to shareholders
  

Management fees of $7mm were fairly modest.

More to be found here.

In addition, Clarivate also reported details on a $1B equity raise which some portion of which will go to fund the acquisition of Proquest.

Barnes & Noble 3rd Quarter Financial Results

Barnes and Noble reported their 3rd quarter numbers today and they were widely discussed and classified as disappointing.  The following is from their press release today:

Third quarter consolidated revenues were $2.2 billion, a decrease of 8.8% as compared to the prior year.  Third quarter consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) were $55 million, as compared to $150 million a year ago. Third quarter consolidated net losses were $6.1 million, as compared to net earnings of $52 million a year ago.  Third quarter results were adversely impacted by NOOK inventory charges and promotional allowances discussed below in the NOOK section.  Third quarter net losses were $0.18 per share, which includes the impact of the dividend on redeemable preferred shares, as compared to net earnings of $0.71 per share a year ago.

On January 23, 2013, the company announced the completion of its strategic partnership with Pearson, which invested $89.5 million in NOOK Media LLC for preferred membership interests representing a 5% equity stake.  Following the closing of the transaction, Barnes & Noble now owns approximately 78.2% of the NOOK Media subsidiary and Microsoft, which also holds preferred membership interests, owns approximately 16.8%.

The company ended the third quarter with cash of $214 million and no borrowings under its $1 billion Revolving Credit facility, as compared to a net debt position of $74 million a year ago.

RetailThe Retail segment, which consists of the Barnes & Noble bookstores and BN.com businesses, had revenues of $1.5 billion for the quarter, decreasing 10.3% over the prior year.  This decrease was attributable to a 7.3% decline in comparable store sales, store closures and lower online sales.  Core comparable store sales, which exclude sales of NOOK products, decreased 2.2% as compared to the prior year.  Sales of NOOK products in the Retail segment declined during the quarter due to lower unit volume.

Despite the sales decline, Retail EBITDA increased 7.3%, from $198 million to $212 million during the third quarter, resulting from a higher sales mix of higher margin core products and expense management.

CollegeThe College segment, which consists of the Barnes & Noble College bookstores business, had revenues of $517 million, decreasing 1.6% as compared to a year ago.  Comparable College store sales decreased 5.2% for the third quarter as compared to the prior year period, as the back-to-school rush season extended past the close of the company’s third fiscal quarter.  Factoring in the two additional weeks in February that contributed to this year’s rush season, comparable store sales decreased 2.1% for the quarter.  College comparable store sales reflect the retail selling price of a new or used textbook when rented, rather than solely the rental fee received and amortized over the rental period.

College EBITDA decreased $1.3 million during the quarter as compared to a year ago to $34 million.  College’s product margins improved during the quarter on a higher mix of higher margin textbook rentals, while expenses increased due to new store growth and continued investments in digital education.

NOOKThe NOOK segment, which consists of the company's digital business (including devices, digital content and accessories), had revenues of $316 million for the quarter.  This represents a decline of 26% as compared to the same period a year ago, primarily as a result of lower device unit volume.  In addition, the company recorded $21 million of incremental channel partner returns given the holiday sales shortfall, as well as $15 million of promotional allowances to optimize future sales opportunities.  Digital content sales increased 6.8% for the third quarter over the prior year. 

NOOK EBITDA losses were $190 million for the third quarter, as compared to $83 million a year ago, primarily resulting from the previously noted sales shortfall, inventory charges, and higher operating expenses.  The company recorded $59 million of additional inventory charges during the third quarter, as the holiday sales shortfall resulted in higher than anticipated levels of finished and unfinished goods.  Operating expenses increased over the prior year on higher advertising costs.

In response to the device sales shortfall over the holiday season, NOOK is calibrating its business model and has implemented a cost reduction program that the company projects will significantly reduce NOOK’s expenses.

“In terms of the NOOK Media business, we’ve taken significant actions to begin to right size our cost structure in the NOOK segment, while also taking a large markdown on NOOK devices in order to enhance our ability to achieve our estimated sales plans in subsequent quarters,” said William Lynch, Chief Executive Officer of Barnes & Noble.  “NOOK Media has been financing itself since October of 2012 due to the strong investment partners we've been able to attract in Microsoft and Pearson.  Coming off the holiday shortfall, we're in the process of making some adjustments to our strategy as we continue to pursue the exciting growth opportunities ahead for us in the consumer and digital education content markets.”  Mr. Lynch also said that going forward NOOK Media still remains committed to its Tablet and e-Reader business.  And, he reiterated that NOOK and Barnes & Noble bookstores will continue to have a close relationship.  “Without question, our bookstores have made a significant contribution to NOOK’s success over the past three years.  And, in turn, our award-winning line of NOOK products have proven to be a strong driver of traffic to our stores.”  

Pearson Reports Financial Results

From their press release:

Pearson accelerates global education strategy:
Restructuring and investment in digital, services and emerging markets for faster growth, larger market opportunity and greater impact on learning outcomes 

Financial highlights*

• Sales up 5% at CER to £6.1bn (with digital and services businesses contributing 50% of sales)
• Adjusted operating profit 1% higher at £936m
• Adjusted EPS of 84.2p (86.5p in 2011)
• Operating cash flow of £788m (£983m in 2011)
• Return on invested capital of 9.1% (9.1% in 2011)
• Dividend raised 7% to 45.0p.

Market conditions and industry change  

Market conditions generally weak in developed world and for print publishing businesses; generally strong in emerging economies and for digital and services businesses.  Continuing structural change in education funding, retail channels, consumer behaviour and content business models.  Considerable growth opportunity in education driven by rapidly-growing global middle class, adoption of learning technologies, the connection between education and career prospects and increasing consumer spend, especially in emerging economies.  

Strong competitive performance

• North American Education revenues up 2% in a year when US School and Higher Education publishing revenues declined by 10% for the industry as a whole.
• International Education revenues up 13% with emerging market revenues up 25%.
• FT Group revenues up 4% with the Financial Times’ total paid print and online circulation up to 602,000; digital subscriptions exceed print circulation for the first time.
• Penguin revenues up 1%, with strong publishing performance and eBooks now 17% of sales.
• Accelerated shift to digital & services and to fast-growing economies
• Pearson announces gross restructuring costs of approximately £150m in 2013 (£100m net of cost savings achieved in the year), focused on:

1. significantly accelerating the shift of Pearson’s education businesses towards fast-growing economies and digital and services businesses;
2. separating Penguin activities from Pearson central services and operations in preparation for the merger of Penguin and Random House.

Restructuring expected to generate annual cost savings of approximately £100m in 2014.
In 2014, £100m of cost savings to be reinvested in organic development of fast-growing education markets and categories and further restructuring, including the Penguin Random House integration. 

From 2015, restructuring programme expected to produce faster growth, improving margins and stronger cash generation. 

Outlook

Pearson expects tough trading conditions and structural industry change to continue in 2013.
Excluding restructuring costs and including Penguin for the full year, Pearson expects to achieve 2013 operating profit and adjusted EPS broadly level with 2012.

Investor presentation slides (pdf)

Also,

Pearson's Penguin Must Participate in E-Book Fixing Trial (Businessweek)
Pearson Launches EdTech Incubator for Startups (Mashable)
Pearson CEO says Financial Times is not for sale (FT)
Pearson Plans Shake-Up (WSJ)
EU to decide on Bertelsmann, Pearson publisher deal by April 5 (4Traders)

Media Banking Activity and Overviews: M&A Deals Doubled in 2012

Jordan Edmiston end of year m/a review (pdf) From the press release:

Burgeoning innovation, rising corporate investment and a year-end rush to beat the tax man drove robust mergers and acquisitions in 2012 for the media, information, marketing and technology sectors. M&A surged to 1,351 transactions for the year, or 50% more than in 2011, at a total value of nearly $75 billion, according to The Jordan, Edmiston Group, Inc. (JEGI) (www.jegi.com), the leading independent investment bank specializing in M&A advisory services across these markets.

This record-setting volume was driven primarily by smaller deals, as approximately 90% of M&A transactions were less than $50 million in value. However, 14 deals topped $1 billion for the year, including six in Q4.

Over 400 of these transactions closed in the fourth quarter, many in December, as sellers sought to beat the calendar on anticipated tax changes in 2013. Indeed, of seventeen transactions closed this year by JEGI, five closed the week before Christmas.

Investment in the interactive markets, including B2B and B2C Online Media & Technology, Mobile Media & Technology, and Marketing Services & Technology, continued to drive the bulk of M&A activity, accounting for 70% of all transactions for the year and 62% of value. Marketing automation companies were in great demand, with acquisitions by Salesforce, Adobe, Oracle and ExactTarget.

Continued growth in digital ad spending helped propel this avalanche of interactive M&A. Internet and mobile advertising revenue in the U.S. reached $9.26 billion in Q3, the largest quarter on record, according to the Interactive Advertising Bureau (IAB). These figures showed an 18% climb over Q3 2011 and a 6% increase over Q2 2012.

Randall Rothenberg, President and CEO, IAB, said, “These historic investments in interactive point to the strong results that marketers are receiving from digital marketing. It is a highly effective medium for interacting and engaging consumers, who are no longer passive, but are active participants in contemporary media online, through social media, and on-the-go with mobile.”

While interactive continues to grow rapidly, the broader media and information industry saw increases in M&A across more “traditional” sectors, such as B2B Media (up 143% in number of deals and nearly 8x in deal value), Database & Information Services (up 40% and 87%), and Exhibitions & Conference (up 56% and 94%).

Healthcare Information & Technology, another hot area of investment, saw M&A deal activity increase 86% in 2012, with more than $10 billion of deal value for the year. Chris Calton recently joined JEGI as a Managing Director to oversee the firm’s healthcare information and technology practice.

From Marlin Associates, their December update of media transactions (pdf). From the press release:

The end of another year is almost upon us. Following this letter is our December 2012 Market Update. As you will see, it provides our latest sense of M&A values, activity and trends for the dozen plus technology, information and healthcare sectors that we follow.
We hope your year has been happy, healthy and prosperous.
This month we saw sizable activity announced, including Knight Capital’s takeover offer from Getco that is valued as high as $1.8Bn. However, the vast majority of transactions were well under $200M, for example FICO’s acquisition of CR Software and Brady’s agreement to acquire Systems Alternative International. One theme we’ve observed is the increasing demand for middle- and back- office IT, as evidenced by the acquisitions of logistics software provider JDA Software and document capture solution provider Encore Imaging Systems.
Healthcare M&A activity continues to be strong as well, with certain transactions demonstrating notable patterns in the industry. For example, Humana has now joined Aetna (Medicity) and United (Axolotl) in purchasing an HIE vendor (Certify Data Systems). Dell divested of its healthcare RCM business to Conifer Health. And lastly, McKesson has had the most active few months in some years in purchasing a variety of HIT assets, most recently acquiring Emendo, a New Zealand-based software company.

Other notable deals include:
• Apollo Global Management agreed to acquire McGraw-Hill Education for $2.5Bn;
• RedPrairie Corporation agreed to acquire JDA Software (NASDAQ:JDAS) for $1.9Bn;
• Knight Capital Group (NYSE:KCG) received a takeover offer from Getco;
• Equifax (NYSE:EFX) agreed to acquire CSC Credit Services for $1Bn;
• Hearst agreed to acquire Milliman Care Guidelines;
• Nets Holding acquired Luottokunta for $209M; and
• MSCI (NYSE:MSCI) agreed to acquire IPD Group for $125M.

Berkery Noyes 3rd Quarter Update from October (pdf):

The most active acquirer through Q3 2012 was Apax Partners with 10 transactions. Four of these occurred within Q3 2012: Solarsoft Business Systems, RivalEdge, CWIEME Ltd, and ClaimLogic, Inc.
The largest announced transaction in Q3 2012 and year-to-date was The Carlyle Group's acquisition of Getty Images from Hellman & Friedman LLC for $3.3 billion.
Total transaction volume in Q3 2012 decreased by four percent over Q2 2012, from 119 to 114.
Total transaction value in Q3 2012 increased by 10 percent over Q2 2012, from $11.4 billion to $12.5 billion.
The median revenue multiple from 2011 through the 1st 3 Quarters of 2012 decreased by 28 percent, from 1.8x to 1.3x.
The median EBITDA multiple from 2011 through the 1st 3 Quarters of 2012 increased by eight percent, from 8.8x to 9.5x.

Who's Buying Whom - Third Quarter 2012 Reports firm Whitestone Communications

Who's Buying Whom reports for the Third Quarter 2012, the most complete reference on acquisition activity in the Internet, Information, Publishing and Training industries. Whitestone specializes in representing buyers and sellers of companies in these fields.

Click here to Download your report (September)

Veronis Suhler Annual Forecast (from September):

Spending within the U.S. Communications Industry will increase 5.2% in 2012 to reach $1.189 trillion as consumers and businesses increasingly embrace digital technology and return to spending levels not seen since before the recent worldwide economic downturn,
according to the 2012 Forecast released today by Veronis Suhler Stevenson (VSS), a global capital private investment firm targeting companies in the information, education, communications and business services industries in North America and Europe. 

The 26th edition of the VSS Communications Industry Forecast 2012-16 (www.vssforecast.com) found that U.S. Communications Industry spending grew 4.4% in 2011 to $1.129 trillion despite a sluggish economy in which nominal Gross Domestic Product expanded 3.9%. Spending rose at a compound annual growth rate (CAGR) of 2.7% in the 2006-2011 forecast period, surpassing GDP by a 0.3 percentage point. VSS expects the Communications Industry to grow at a 5.2% CAGR to $1.455 trillion by 2016, almost two times the growth rate during the past five years. At that pace, the Communications
Industry will remain the fifth-largest industry among 15 economic sectors in 2016.
Once seen as a trend in only selected pockets of the U.S. Communications Industry, digital
communications and services – encompassing content, technology and user access -- has firmly
established itself as the driving force of growth across all of its sectors, segments and subsegments.

Through the use of ever-evolving platforms and channels, digital is giving a rising number of
communications companies the power to more effectively target and connect with both consumer and business customers. Demand for digital and mobile devices continues to grow steadily, ensuring that there will be a similar increase in the number of end users. Traditional communications companies that relied heavily on print products continue to make the transition to digital, and those that fully embrace it are the ones most likely to remain relevant to their audiences.

Admedia Partners annual report isn't completed yet: AdMedia's 2013 Survey on M&A Prospects will be available in early 2013. To be among the first to receive the results, please join our mailing list.

MediaWeek (Vol 5, No 35) Retail Bookstore Results: BN, Smiths, BAM, Dymocks (Aust) Strategy + More

Barnes And Noble reported their first quarter results which were mixed (Press Release)

First quarter consolidated revenues increased 2.5% to $1.5 billion as compared to the prior year. First quarter consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) was $4 million as compared to a loss of $24 million a year ago. The consolidated first quarter net loss declined 28% as compared to the prior year to $41.0 million, or $0.78 per share.

Digital Content Sales Increase 46%
Bookstore Comparable Sales Increase 4.6%
Retail EBITDA Increases 88% to $75 million

“During the first quarter, we continued to see improvement in both our rapidly growing NOOK business, which saw digital content sales increase 46% during the quarter, and at our bookstores, which continue to benefit from market consolidation and strong sales of the Fifty Shades series,” said William Lynch, Chief Executive Officer of Barnes & Noble. “The growth in comps at retail and the continued strong growth of our digital content business, as well as increased cost management focus, were drivers in the business turning from an EBITDA loss last year to slightly positive EBITDA in the first quarter of this year. As announced yesterday, we are excited to expand our award winning NOOK digital bookstore and devices beyond the U.S. market and to work with U.K. retailers to bring millions of U.K. customers the best experience in digital reading.”

Retail

The Retail segment, which consists of the Barnes & Noble bookstores and BN.com businesses, had revenues of $1.1 billion for the quarter, increasing 2% over the prior year. Comparable bookstore sales increased 4.6% for the quarter, as compared to the prior year period. Comparable bookstore sales continued to benefit from the liquidation of Borders’ bookstores in fiscal 2012 and strong sales of the Fifty Shades of Grey series. Core comparable bookstore sales, which exclude sales of NOOK products, increased 7.6% for the quarter. BN.com sales continued to decline for the quarter.

Retail earnings before interest, taxes, depreciation and amortization (EBITDA) increased from $40 million to $75 million during the first quarter, an 88% increase, driven by comparable sales increases, a higher mix of higher margin core products and increased store productivity.

College

The College segment, which consists of the Barnes & Noble College bookstores business, had revenues of $221 million during this non-back-to-school rush period. Comparable College store sales decreased 2.0% for the quarter, as compared to the prior year period. College comparable store sales reflect the retail selling price of a new or used textbook when rented, rather than solely the rental fee received and amortized over the rental period.

College EBITDA losses increased by $2 million during the quarter from a loss of $12 million a year ago to a loss of $14 million, driven by new store expenses and investments in digital education.

NOOK

The NOOK segment, which consists of the company’s digital business (including Readers, digital content and accessories), had revenues of $192 million for the quarter, essentially flat as compared to last year. Digital content sales increased 46% for the first quarter. Digital content sales are defined to include digital books, digital newsstand, and the apps business. Device sales declined for the quarter due to lower average selling prices and production scaling issues surrounding the popular newly launched GlowLight product resulting in unmet demand.

NOOK EBITDA losses increased by $6 million, from a loss of $51 million to a loss of $57 million, as a result of product markdowns on the recently announced NOOK price adjustments, as well as continued investments in the NOOK business.

Newco Formation

On April 30th, the company announced that it has formed a strategic partnership with Microsoft to form a new subsidiary, Newco, which is comprised of the company’s NOOK digital and College businesses. The company continues to be actively engaged in the formation of Newco and is in the process of implementing the work necessary to complete the Microsoft transaction. The company expects the Microsoft transaction to close this Fall.

Related:

BusinessWeek: Barnes & Noble Investor Elation With Microsoft Deal Fades
Publishers' Weekly: Content Drives Improvement at Barnes & Noble

Things seem to be going well for UK retailer WH Smiths which in advance of their full year results they announced they would perform at the top end of analyst expectations: Press Release:

WH Smith PLC will announce preliminary results for the year ending 31 August 2012 on Thursday 11 October 2012. Prior to its close period, the Company today issues the following pre close update.

The Travel business continues its good performance despite the current economic climate and its UK store opening programme remains on track. We continue to manage costs tightly and have delivered strong gross margin gains driven by good mix management. Travel continues to make good progress in winning new business in its international channel.

In the High Street business our focus on gross margin and tight cost control continues to deliver a good performance. In addition, High Street has seen an improvement in the sales trend of books following the recent positive publishing schedule.

WH Smith PLC expects the outcome for the year to 31 August 2012 to be at the top end of market expectations.  Both businesses remain highly cash generative.

Related:
Guardian: WH Smith shares hit all-time high as retailer expects good profits
Telegraph; Questor share tip: Update leaves WH Smith looking anything but grey

Books A Million announce their second quarter results (Press Release)

Books-A-Million, Inc. (NASDAQ:BAMM) today announced financial results for the 13-week and 26-week periods ended July 28, 2012. Net sales for the 13-week period ended July 28, 2012 increased 14.9% to $120.4 million compared with sales of $104.8 million in the year-earlier period. Comparable store sales for the second quarter increased 0.5%, compared with the 13-week period in the prior year. Net loss from continuing operations for the second quarter was $0.9 million, or $0.06 per diluted share, compared with net loss from continuing operations of $2.9 million, or $0.18 per diluted share, in the year-earlier period.

For the 26-week period ended July 28, 2012, net sales increased 12.7% to $233.5 million from net sales of $207.2 million in the year-earlier period. Comparable store sales declined 1.8% compared with the same period in the prior year. For the 26-week period ended July 28, 2012, the Company reported net loss from continuing operations of $2.8 million, or $0.18 per diluted share, compared with net loss from continuing operations of $6.3 million, or $0.40 per diluted share, in the year-earlier period.

Commenting on the results, Terrance G. Finley, Chief Executive Officer and President, said, "Results for the quarter reflect the contribution from our new stores that opened in the 4th quarter, the phenomenal success of the Fifty Shades of Grey series, and continued solid performance in kids, teen and general merchandise. Our team remains focused on diversifying our store assortments and adjusting our store layouts to support our core business and new categories as we prepare for the upcoming holiday season.”

The Company also announced today that the Company’s Board of Directors has authorized a program to repurchase up to $5 million in shares of its common stock. Stock may be purchased on the open market or through private transactions from time to time through March 31, 2014, dependent upon market conditions. The plan does not obligate the Company to repurchase any specific number of shares and may be suspended at any time at management’s discretion. The Company currently has 16.0 million shares of common stock outstanding.

Related:
Publishers' Weekly:: New Stores Boost Books-A-Million

Interesting write-up on the state of the Australian retail book market with a focus on Dymocks the largely franchise operator of bookstores (Sydney Telegraph)

Dymocks managing director Steven Cox said Dymocks had benefited from the Borders and A&R collapse. Stores that were competing, in many cases, against a Borders and an Angus & Robertson store became the only specialist seller in the shopping centre. "We have gone from an over-supply in the Australian market to having gaps in the market and locations with no bookstore," Mr Cox said. "We have a real opportunity to connect with more customers."

Dymocks opened eight new stores last year and a new store at Charlestown this year, with one at Wollongong soon to open and several more in the offing, including one at Hornsby, which was left without a specialist bookstore after Borders closed. He is less concerned about Amazon. "We've competed with Amazon for many years and we spend a lot of time connecting with our customers," Mr Cox said.

"The challenge people have is finding something of quality. We have really knowledgeable staff, our stores are locally owned and operated, and we help people find great books. "Readers want to have confidence they are buying a great book and our strength is in that. Amazon can't compete with our level of service."

On price, Mr Cox insists that without changes to the import laws, bookstores will struggle to compete with online retailers. His stance pitches him against publishers, who won a battle in 2009 when the federal Labor government rejected parallel import laws.

Australian publishers have the exclusive right to publish books written by overseas authors. So if a major American or British author brings out a book, booksellers such as Dymocks must wait until the local publisher prints it, which in some cases can be months after the overseas release. For the publisher, it means they can effectively subsidize Australian authors through the sales of big-name overseas authors and profit from the biggest releases.

Borders (Australia) Online name to disappear (The Bookseller):

The Borders name will soon be retired as the Pearson Group looks to rebrand the remaining online store under their Bookworld banner.

Despite Borders stores disappearing from the UK and USA, the name had continued in Australia as an online e-book store, but will soon be replaced, according to reports in The Australian.

James Webber, the chief executive of Bookworld, a division of the Pearson Group, told the newspaper: “We just believe the Borders brand has had its day. There are no stores left and globally it’s been in demise so we believe there’s an opportunity to revitalize (the franchise).”

From Twitter:
Digitize Your Personal Backlist? For a Dollar? BookBusiness
Julian Barnes pays tribute to Parade's End by Ford Madox Ford for  Guardian
Nebraska Book Company Names Steve Clemente President And CEO (PRNews)
Why All Schools Need iPads: Ending Texas's Bizarre Control Over National History Textbooks http://tcrn.ch/NmskFk

BISG: Adult Fiction Now 30% of Sales

The BISG will release their updated annual survey of the publishing industry next week but their press release today offers some tidbits of information of interest to many who track the industry.

The overall US publishing market contracted 2.5% to $27.2Billion down from $27.9 in 2011 however the results suggest changes in the product mix or general deflationary pricing since volume was up 3.4% year on year.

Naturally a highlight of the study remains the growth of eBooks in trade and the study points to the general acceptance of buyers of Trade Adult Fiction to the eBook format.  According to the report fully 30% of revenues are now in eBook format and this is now the dominant format for buyers.  Overall the report compiles data from over 1900 publishers in for sectors:  Trade (fiction and non-fiction for adults and children), School/K-12, Higher Education and Professional/Scholarly Publishing.

More from the press release:

• In the overall Trade sector (encompassing Fiction and Non-Fiction for Children, Young Adults and Adults), e-books’ net sales revenue more than doubled in 2011 vs. 2010. This significant growth was particularly fueled by e-books’ performance in the Adult Fiction segment where, for the first time, they ranked #1 in net revenue among all individual print and electronic formats. 

• Among categories, both Religion and Children’s/Young Adults showed strong growth while Children’s/YA ranked as the fastest-growing category in publishing in 2011.

• Despite the negative impact of Borders’ bankruptcy and closures, particularly on print book sales, through three quarters of 2011, the Trade market held up equal with 2010 revenue figures, even showing a slight increase. 

• Brick-and-mortar retail remained the #1 sales distribution channel for publishers in 2011, as it did in 2010. Publishers’ revenue from direct-to-consumer sales nearly doubled, topping $1 billion for the first time.

The growth of E-Book

The e-book phenomenon continued through 2011, attributable to the ongoing popularity of e-readers, tablets, and other devices as well as publishers’ strategic production, distribution and marketing of content in all e-formats. 

In the overall Trade sector, publishers’ net sales revenue from e-books more than doubled: from $869 million, or 6% of Trade net revenues, in 2010 to $2.074 billion, or 15% of net revenues, in 2011. Units more than doubled as well: 125 million e-books sold in 2010, representing 5% of the Trade sector, grew to 388 million e-books, representing 15.5%, in 2011. While e-books showed increasing strength, the combined print formats (including Hardcover, Trade Paperback and Mass-Market Paperback) still represented the majority of publishers’ net revenue in the Trade sector at $11.1 billion for 2011. 

Within the Trade sector’s Adult Fiction category, records were broken as e-books became the dominant single format there in terms of net revenue for calendar year 2011 with 30% of total net publisher dollar sales. In 2010, e-books had ranked fourth among the individual print and electronic categories with 13% share. Adult Fiction e-book revenue for 2011 was $1.27 billion, growing by 117% from $585 million in 2010. This translated to 203 million units, up 238% from 85 million in 2010. Similar to the broader overall Trade sector, the combined print formats also represented the majority of publishers’ revenue in the Adult Fiction category, at $2.84 billion.

Overall industry numbers

Despite the prolonged impact of the Borders bankruptcy (particularly on orders of print format books) but buoyed by continuing popularity of e-books, publishers net sales revenue for the Trade sector was $13.97 billion for 2011 as compared to $13.90 for 2010. This was an increase of 0.5%.

The overall total U.S. book market (representing all commercial, entertainment, educational, professional, and scholarly sectors) declined just 2.5%, from $27.9 billion in 2010 to $27.2 billion in 2011. While overall net revenue was down, overall units were up 3.4%, from 2.68 billion in 2010 to 2.77 billion in 2011.

The Children’s/Young Adult category saw the highest year-over-year, increasing 12% from $2.48 billion to $2.78 billion. One factor was the enormous popularity of several blockbuster releases from publishers, particularly in YA Fiction. Religious books rebounded in 2011 after a decline in 2009 with its growth reflecting the category’s digital transition as well as success of several major titles.

Sales distribution channels

Despite the Borders bankruptcy resulting in the closure of more than 500 stores in 2011, brick-and-mortar retail again ranked as the #1 sales channel for publishers in 2011: net revenue was $8.59 billion, representing 31.5% of total net dollar sales. This was, however, a decline of 12.6% from 2010

This year, it was followed by:

• Institutional sales (including sales to libraries, businesses, government, schools, and other organizations): $5.39 billion or 20%.
• Online retail: Reflecting broader national trends in consumer purchasing, revenue from sales through online retail grew 35% from 2010 ($3.72 billion) to $5.04 billion in 2011. This channel, which represented 13% of total publisher net dollars in 2010, grew to 18.5% of the total in 2011.
• Wholesalers/jobbers: Publishers’ revenues were $5.04 billion (18% of total) from this channel, which serves independent booksellers and mass merchants among other retailers.

A notable highlight in BookStats 2012: direct-to-consumer sales by publishers nearly doubled in revenue and topped $1 billion for the first time. In 2011, publishers saw $1.11 billion in direct-to-consumer dollars, growing from $702 million in 2010 – an increase of 58%.

Pearson Rakes in $700MM from FTSE Sale

Pearson continues to shed non-core assets announcing today that they have sold their 50% interest in FTSE International Limited to The London Stock Exchange.  As they have done in the recent past, the company appears to have secured very good value from the divestiture.  Over the past two years, Pearson has quietly restructured their business, selling non-core businesses at high multiples, reorganizing internally and buying new businesses that expand their content distribution and service capabilities.

From the press release:

FTSE is a world-leader in the creation and management of more than 200,000 equity, bond and alternative asset class indices. With offices in London, Frankfurt, Hong Kong, Beijing, Shanghai, Madrid, Milan, Mumbai, Paris, New York, San Francisco, Sydney and Tokyo, FTSE works with partners and clients in 80 countries worldwide.

Pearson and London Stock Exchange Group currently each own 50% of FTSE. Under the terms of the agreement, London Stock Exchange Group will acquire from Pearson the 50% of FTSE that it does not own and continue to use the FTSE name. The transaction is expected to close by the first quarter of 2012.

In 2010, FTSE reported total revenues of £98.5 million and total EBITDA of £40 million. At 31 December 2010, FTSE had gross assets of £100.8m.

Pearson expects FTSE to make a total post-tax contribution to Pearson’s adjusted earnings of approximately £18 million or 2.2p per share in 2011.

The transaction follows the sale of Pearson’s stake in Interactive Data last year for $2bn. It marks Pearson’s exit from companies that are primarily providers of financial data and strengthens the FT Group’s focus on global business news, analysis and intelligence, increasingly delivered through subscription models and digital channels.

In her quote CEO Majorie Scardino emphasized that the sale will enable the company to continue their strategy of buying digital and service oriented businesses that compliment their core businesses.  “For Pearson, the transaction further strengthens our financial position at a time of significant macroeconomic turbulence. We are freeing up capital for continued investment in a proven strategy: becoming more digital, more international and more service-oriented in education, business information and consumer publishing.”

Pearson Raises Outlook (Again)

From their press release this morning:

• Sales up 6% and operating profit up 13%*
• All businesses trading as expected
• Adjusted EPS now expected to be approximately 83p per share, benefiting from lower interest and tax

Pearson, the world’s leading learning company, is today providing its regular nine-month interim management statement.

Pearson increased sales by 6% and operating profit by 13% in the first nine months of 2011. Our businesses once again produced strong competitive performances in generally weak market conditions, benefiting from premium content and services, digital innovation and presence in developing economies.
The fourth quarter is always a key selling season in education and consumer publishing. But with all of our businesses performing well, we are reaffirming our trading guidance for the full year in spite of the recent deterioration in the macroeconomic outlook.
In addition, we anticipate that our interest and tax charges on adjusted earnings will be lower than our previous guidance. As a result, we now expect to achieve adjusted earnings per share of approximately 83p for the full year (ahead of our previous guidance of approximately 80p). This guidance assumes that the current exchange rate of £1:$1.60 prevails in the fourth quarter.
Pearson’s chief executive Marjorie Scardino said: “The world economy is neither simple nor helpful this year, but we are producing another good year for Pearson. Our mix of markets and services, as well as our ability to invest and to implement, has given us competitive strength that makes us confident of that. We can’t count on the trading environment to get any easier any time soon, but we do expect our durability and our innovation to continue to help us succeed.”

This is the section of the press release specific to Education:

In education, our long-term investment in technology and services is enabling us to achieve sustained growth, even in tough markets for education materials. For our education company as a whole, sales are up 7% in the first nine months of the year.

In North America, textbook publishing markets have been weak in 2011, affected by state budget pressures, the transition to Common Core standards and slower college enrolments. For the first nine months of the year, total sales for the US School and College textbook publishing industries declined by 11% and 2% respectively, according to the Association of American Publishers. 

Even so, Pearson’s sales in North American Education were up 1% as our leadership in digital learning continued to produce market share gains. In Higher Education, we generated more than eight million student registrations for our subject-specific digital homework and assessment programmes (the MyLabs), and almost five million enrolments in online courses provided through Pearson’s LearningStudio (formerly known as eCollege). These student registrations represent growth rates of 23% and 33% respectively over the same period last year. 

Our Assessment and Information business remained resilient with good growth in clinical and diagnostic assessments and automated online test scoring outweighing lower national test revenues. 

Our School Curriculum business continued to face state budget pressures, a smaller new adoption opportunity (of approximately $660m) and uncertainty caused by the pending transition to Common Core standards. It benefited from the particularly strong performance of our blended print-and-digital programmes in new adoptions, helping Pearson to win an estimated 37% share of new adoptions in which we competed. In September, we announced the acquisition of Connections Education which operates virtual public schools in 21 states in the US and served more than 40,000 students in the current school year. 

Sales in International Education were up 19% after nine months. By product line, we achieved good underlying growth in English language learning, assessment and higher education; and by geography in China, the Middle East and Italy. We are also benefiting from the contribution of our newer services businesses including English language schools around the world and universities in South Africa. School textbook publishing has tended to be relatively weak, particularly in markets where purchases are publicly-funded. In the first nine months, MyLab registrations outside North America were up more than 30% on the same period last year to more than 600,000. In August, we announced the acquisition of Stark Holding, a leading provider of education materials including test preparation resources for pupils and teachers in Germany. 

In Professional Education, sales were up 21%. We continued to see good growth in Professional Testing, which administered almost six million tests in the first nine months of the year, benefiting from sales of additional services to existing customers. We are also investing in a major strategic partnership with the American Council on Education to develop an online General Educational Development (GED) test aligned with new Common Core standards. Market conditions in our professional publishing business remained challenging but our digital programmes performed well. We continued to benefit from our growing presence in professional training, as Pearson in Practice (formerly known as Melorio) grew well despite tougher conditions in construction training. In October we announced the acquisition of TQ, which provides vocational and technical education and training services to governments, institutions and corporations around the world. 

Even so, Pearson’s sales in North American Education were up 1% as our leadership in digital learning continued to produce market share gains. In Higher Education, we generated more than eight million student registrations for our subject-specific digital homework and assessment programmes (the MyLabs), and almost five million enrolments in online courses provided through Pearson’s LearningStudio (formerly known as eCollege). These student registrations represent growth rates of 23% and 33% respectively over the same period last year. 

Our Assessment and Information business remained resilient with good growth in clinical and diagnostic assessments and automated online test scoring outweighing lower national test revenues. 

Our School Curriculum business continued to face state budget pressures, a smaller new adoption opportunity (of approximately $660m) and uncertainty caused by the pending transition to Common Core standards. It benefited from the particularly strong performance of our blended print-and-digital programmes in new adoptions, helping Pearson to win an estimated 37% share of new adoptions in which we competed. In September, we announced the acquisition of Connections Education which operates virtual public schools in 21 states in the US and served more than 40,000 students in the current school year. 

Sales in International Education were up 19% after nine months. By product line, we achieved good underlying growth in English language learning, assessment and higher education; and by geography in China, the Middle East and Italy. We are also benefiting from the contribution of our newer services businesses including English language schools around the world and universities in South Africa. School textbook publishing has tended to be relatively weak, particularly in markets where purchases are publicly-funded. In the first nine months, MyLab registrations outside North America were up more than 30% on the same period last year to more than 600,000. In August, we announced the acquisition of Stark Holding, a leading provider of education materials including test preparation resources for pupils and teachers in Germany. 

In Professional Education, sales were up 21%. We continued to see good growth in Professional Testing, which administered almost six million tests in the first nine months of the year, benefiting from sales of additional services to existing customers. We are also investing in a major strategic partnership with the American Council on Education to develop an online General Educational Development (GED) test aligned with new Common Core standards. Market conditions in our professional publishing business remained challenging but our digital programmes performed well. We continued to benefit from our growing presence in professional training, as Pearson in Practice (formerly known as Melorio) grew well despite tougher conditions in construction training. In October we announced the acquisition of TQ, which provides vocational and technical education and training services to governments, institutions and corporations around the world.

Bertelsmann Reports Half Year - Lowers Full Year Estimate

From the company's press release:

• Group revenues rise to €7.2 billion
• Operating EBIT high again at €737 million
• Return on sales continues in double digits at 10.3 percent
• Group profit improves to €269 million

In the first half of 2011, the international media company Bertelsmann built on the strong results of the previous year and further increased key indicators. For instance, the company increased its revenues and group profit once more and achieved a high level of operating profit again. 

Group revenues from continuing operations increased by 1.9 percent to €7.2 billion after €7.0 billion in the comparable period last year. Excluding portfolio and currency effects, organic growth came to 2.4 percent; all divisions contributed to this. Operating EBIT was €737 million, down only slightly from last year’s record figure of €754 million. Return on sales amounted to 10.3 percent (H1 2010: 10.7 percent), putting it in the double digits once again. The Group profit rose by €23 million or 9.3 percent, to €269 million. This was due primarily to Bertelsmann’s content businesses. A further contributor was a substantially improved financial result that reflects lower interest charges in the wake of successful debt reduction and the discontinuation of negative income effects from the buyback of profit participation certificates in early 2010. The Bertelsmann Value Added (BVA), which measures the profit realized above and beyond the cost of capital, reached €88 million in the first half of 2011 (H1 2010: €82 million).

Comments on Random House

• Random House profits rise substantially driven by U.S.
• Triple-digit percentage sales growth in e-books
• Digital revenue potential strengthened through acquisition of digital media agency Smashing Ideas

The world’s largest trade book publisher significantly increased its operating EBIT in the first half, while recording a slight dip in revenues due to unfavorable exchange-rate effects. Revenues reached €787 million (H1 2010: €791 million) and operating EBIT €69 million (H1 2010: €40 million). The Random House operating EBIT benefited from a strong U.S. performance despite insolvencies and ongoing consolidations in book retail. Overall gains were driven by an outstanding portfolio of titles worldwide, with several million-copy print bestsellers, and the continued rapid growth in e-book sales across all territories. In the U.S., digital sales accounted for more than 20 percent of all revenues. At the reporting date, Random House imprints had more than 27,000 e-books available worldwide. Random House placed 145 titles on the “New York Times” U.S. bestseller lists in the first six months of the year, including the #1 bestselling “Unbroken” by Laura Hillenbrand, and sold nearly four million copies of U.S. author George R.R. Martin’s epic fantasy series “A Song of Ice and Fire.” Random House Group UK increased its year-on-year sales and profits and published more than a quarter of all “Sunday Times” bestsellers. In Germany, Verlagsgruppe Random House improved its revenues and market share in a difficult overall market, and Random House Mondadori also outperformed the market in Spain. During the period under review, Random House, Inc. author Jennifer Egan won a Fiction Pulitzer Prize for “A Visit from the Goon Squad,” and Philip Roth won the Man Booker International Prize.

Cengage Full Fiscal Year Results Disappoint

Cengage Learning, the large privately held educational publisher, recently announced (PDF) disappointing full year 2011 financial results; but in their presentation, the company did endeavor to communicate how material their transition from a print centric to an electronic publishing will be for the company.

Leading with the good news, management focused on how much additional value Cengage will be able to extract from students purchasing their content once the material is available online. The company suggests that while prices for electronic content may be reduced, the penetration rate into the typical class will be significantly higher once that content is delivered electronically. For example, in a class size of 600 (over three years) the publisher may currently only sell to about 33% of students but, in the online scenario, the penetration rate could be 90%. As noted, while revenue is potentially higher, gross margin is markedly higher by about 10 percentage points (75% versus 85%) according to their example (slide 6).

Since Cengage was purchased from Thomson Reuters the company has been in a race to migrate and/or convert their content into electronic form. In this presentation management underscored some important milestones in that effort. Over 70% of their products now have an electronic component which is expected to rise to 75% by the end of fiscal 2012. Both sessions and activations are up in percentage terms but these stats are harder to place in context. The company also noted the recent acquisition of National Geographic School Publishing which now makes Cengage a leading English language provider in the US.

However, the discussion of the financial results was less positive. A weak third and fourth quarter resulted in a significant drop in top line revenue which has been attributed to timing of orders and the loss of some adoptions. Interestingly, the company also noted that the increase in textbook rental programs may also have adversely impacted their revenue. Cengage launched their own textbook rental program recently but Chegg will be the prime offender in this category.

Other areas of concern included lower gross sales in their career segment (reflecting sales made to career and vocational schools) and Research (Gale) which declined $25mm due to lower print and online sales.

In summary, the financial results were as follows:

Fourth Quarter:

($ Millions)	2011	2010	Change
Revenue	472.9 $	$ 553.4	(14.5)%
Adjusted EBITDA	$ 201.5	$ 234.0	(13.9)%
Margin	42.6%	42.3%

Full Year:

($ Millions)	2011	2010	Change
Revenue	$ 1,875.9	$ 2,017.6	(7.0)%
Adjusted EBITDA	$ 780.4	$ 840.1	(7.1)%
Margin	41.6%	41.6%
Capital Expenditures	252.5	203.0	24.4%
Unlevered Free Cash Flow	$506.7	$596.7	(15.1)%

For a full explanation of the results check the Cengage investor presentation here.

FT On Potential McGraw-Hill Break-Up

Reporting via mergermarket.com the FT suggests that the activist shareholders seeking to unearth greater value from their holdings in McGraw-Hill will face an up hill battle (FT).

McGraw-Hill has spent the last ten to twelve months receiving advice from a slew of media bankers, the industry bankers said. “Even if the activists have revolutionary ideas in mind, chances are it’s already been pitched to the management and considered under various scenarios,” the first of the bankers said.

And further comments on the education assets specifically:

McGraw-Hill has been receiving sales pitches for its education publishing assets, specifically its higher education textbook assets, the first and second bankers said.
These assets have drawn strong interest from financial sponsors like Blackstone and Hellman & Friedman and could fetch around USD 3.5bn in a sale, according to a lender following the situation. Both sponsors declined to comment.
Other sponsors with historical expertise in education include Bain Capital, KKR, Providence Equity Partners, and Warburg Pincus.
The approaches come as McGraw-Hill has been accused of being slow to respond to technology changes in the publishing business.
“They’re not playing in the back-office ERP (Enterprise Resource Planning) areas and student information systems that Pearson (PSON:LN) or GlobalScholar are playing in and that are higher growth margins,” said a third banker.
Pearson’s education sales jumped 7% and operating profit rose 16% last year based on public filings, meanwhile McGraw-Hill’s revenue and operating income for 2Q11 decreased 5.0% and 18.3%, respectively. Pearson, the owner of the Financial Times, is the parent company for this news service.
With McGraw’s education business not growing, it makes sense to consider a split of the business from the company’s profitable Standard & Poor’s ratings service, the industry bankers said.

More from the FT here.