Bertelsmann Reports Double-Digit Growth In Operating Results
- Operating EBITA up by 20 percent to € 1,123 million
- Return on Sales (ROS) improved to 6.7 percent
- Consolidated revenues nearly stable after adjusting for currency and portfolio effects
- All divisions are back to profitability
- Financial targets achieved
The international media and entertainment company Bertelsmann announced on Tuesday at its Annual Press Conference in Berlin that it improved its operating result by 20 percent to € 1,123 million in 2003 (previous year: € 936 million). One of the main contributors to the increase in earnings was the Direct Group’s significant turnaround by focusing on the Club businesses. The television, radio and TV production group RTL Group and the media services provider Arvato also had significant improvements in their results. Due to the weak US dollar and the sale of the Bertelsmann Springer division, consolidated revenues declined by 8.3 percent to € 16.8 billion in 2003 (previous year: € 18.3 billion), but remained nearly stable when adjusted for currency and portfolio effects. Operating ROS improved to 6.7 percent (previous year: 5.1 percent). Net financial debt was reduced to € 820 million (year-end 2002: € 2.7 billion). The number of employees was reduced to 73,221 at the end of the year, mostly due to the sale of Bertelsmann Springer (year-end 2002: 80,632).
In 2003, Bertelsmann generated a significantly increased operating result, with Operating EBITA of € 1,123 million (previous year: € 936 million), despite declining revenues and a tough economic environment. This success comes after two years of consolidation, during which Bertelsmann strengthened its core businesses, increased the profitability of the group’s companies, and cut loss-makers.
“Bertelsmann builds on a healthy foundation: All corporate divisions are profitable, and our finances are in order. We now return to concentrating on growth,” emphasized Bertelsmann AG Chairman & CEO Gunter Thielen at the Annual Press Briefing.
Bertelsmann’s revenue decreased to € 16.8 billion (previous year: € 18.3 billion) primarily due to currency effects (minus € 1.05 billion). Changes to the portfolio, such as the sale of Bertelsmann Springer, also reduced consolidated revenues. Adjusted for currency and portfolio effects, consolidated revenues remained nearly on par with the previous year despite poor consumer confidence and the persistent weakness of the advertising market in a number of countries.
Operating Return on Sales (ROS), which had already improved from 3.0 to 5.1 percent over the previous two years, rose to 6.7 percent in 2003.
After deducting for financial result, taxes, amortization of goodwill and special items, net income before minority interests amounted to € 208 million (previous year: € 968 million). The previous year’s figure included significant capital gains from the sale of AOL Europe holdings.
Deputy Chairman and Chief Financial Officer Siegfried Luther commented: “In 2003, thanks to our successfully concluded strategy of consolidation, we again met all our financial targets, more rapidly and distinctly than planned. At the same time, we have systematically shifted our financing to the capital market through our US dollar Private Placement and the issuance of a euro benchmark bond.“
In the years ahead, Bertelsmann will concentrate on enhancing innovation and accelerating growth, by means of the “Growth and Innovation“ (GAIN) initiative. Another focus of its efforts will be the planned merger between the recorded music divisions of BMG and Sony Music Entertainment.
Gunter Thielen stated: “We will continue to systematically increase Bertelsmann’s value and further improve our profitability. In doing so, we rely on growth from within, on creativity and innovation, and on acquisitions to strengthen our core businesses. The current year has already shown promise, thus we expect that Bertelsmann will continue to increase its operating results.”
Other key financials:
The special items not included in Operating EBITA yielded a positive total of € 547 million in 2003 (previous year: € 2.8 billion). Capital gains were generated from the sale of Bertelsmann Springer and the sale of the Direct Group’s holding in the online bookseller Barnesandnoble.com. These special items were reduced by a provision for a lawsuit in connection with the former joint venture AOL Europe, as well as by ongoing restructuring at the Bertelsmann Music Group (BMG).
In 2003, regular amortization of goodwill and rights similar to goodwill amounted to € 717 million (previous year: € 784 million). Impairments, which in 2002 included a significant impairment on the goodwill of Zomba Records and amounted to € 1.7 billion, were € 220 million for 2003.
Investments totaled € 761 million in 2003 and − after the high investments of the previous year (€ 5.3 billion) − reflect the company’s restrained investment policy. 2002 marked the acquisition of the music company Zomba and a 22-percent share in RTL Group. 2003 saw bolt-on acquisitions, such as the acquisition of Heyne Verlag by the Random House publishing group.
Total assets at the end of the year amounted to € 20.2 billion, 9.1 percent below previous year (€ 22.2 billion). This is mainly due to the sale of Bertelsmann Springer and currency effects. The equity ratio was up by 2.9 percentage points year-on-year: at 37.8 percent, it remains well above Bertelsmann’s target ratio of 25 percent.
Net financial debt was reduced by nearly € 1.9 billion in 2003, down from € 2.7 billion the previous year to € 820 million at year-end 2003. This was achieved chiefly through the sale of Bertelsmann Springer, the Random House building in New York City, and the Barnesandnoble.com shareholding. The weakening of the US dollar vs. the euro also had a positive effect on net financial debt. By rapidly reducing its net financial debt, Bertelsmann has achieved its financial goal of a debt payback factor of less than 1.5. This factor, which describes the relationship of net financial debt to cash flow, was 0.6 in 2003 (previous year: 2.5)
Revenues by Region: As a result of the weak US dollar, the share of US-based revenue as part of total consolidated revenues declined to 25.1 percent (previous year: 27.5 percent). Revenue generated from Germany dropped slightly from 31.1 percent to 30.7 percent. The other European countries contributed 38.6 percent of the consolidated revenues (previous year: 35.5 percent), and the remaining countries accounted for 5.6 percent (previous year: 5.9 percent).
Profit Participation Certificates: In May 2004, 15 percent of the par value will be paid out on the Bertelsmann Profit Participation Certificate 2001 (PPC 2001), as stipulated in the terms and conditions governing PPCs 2001. Payout on the “old” Bertelsmann Profit Participation Certificate from 1992 will be 6.92 percent of par value.
Corporate divisions:
RTL Group, Europe’s leading television, radio and TV production group, was able to improve its revenues and earnings in 2003 in a challenging market environment: Revenues amounted to € 4.5 billion vs. € 4.4 billion the previous year, while Operating EBITA rose to € 503 million from € 465 million the previous year. In March, Gerhard Zeiler was appointed the new Chief Executive Officer of RTL Group. RTL Group’s companies relied on innovative programming, a more diversified revenue structure and strict cost control to counteract continuing weak advertising volume, most notably in Germany. Rising viewer market shares and the profitability of all stations in the group bear testimony to the success of its approach. The German family of channels anchored by RTL Television again managed to add viewers and ad-market shares. In 2003, RTL Television scored the highest ratings since 1997 among the important target group for advertisers, once again securing its leadership of the market. Non-advertising-related revenues increased significantly. Thanks to a broad revenue base, France’s M6 was again able to set itself apart positively from developments in the industry. The company registered double-digit growth in both revenues and result. The British TV channel Five, which during the period under review achieved a first-time positive result, and the Holland Media Group (HMG) channels in the Netherlands also added viewer and ad-market shares. The channels in the Belgian RTL-TVI group had an extraordinarily good year. In TV production, Fremantle Media continued to profit from the worldwide rollout of the “Pop Idol” format.
In 2003, an economically challenging year for the book industry, Random House enhanced its position as the global leader in trade book publishing. Revenues amounted to € 1.8 billion after € 2.0 billion the previous year, while Operating EBITA reached € 147 million after € 168 million the previous year. The decline in revenues and profits is attributable to foreign currency effects, which result mainly from the conversion of dollars to euro for the greatest part of Random House`s business, which is done in the US. Adjusted for currency effects, Random House revenues and profits increased slightly year-on-year. The euro results therefore do not reflect the underlying strength in the operating business. In North America, where book retail was slowed down by a weak first-half economy, Random House was able to increase its book sales, year over year, achieving its best year-end holiday book sales ever. Strong cost-management discipline contributed to keep profitability stable and to counteract the growing pressure on margins. The publishing group placed 176 titles in the “New York Times” bestseller lists in 2003 – once again, more than any other publishing company. Random House of Canada had its best year ever in sales and profits. In the United Kingdom, the Random House Group again made a significant contribution to the division’s overall results by surpassing its corporate targets and increasing its share of the general retail market. In a flat German book market, marked by further consolidation among publishers and booksellers, Verlagsgruppe Random House expanded its operations significantly by acquiring Heyne Verlag. In January 2003, Random House became the first Western trade book publisher to enter the Asian book market by forming a joint venture with Kodansha, Japan’s leading book publisher. A similar landmark collaboration was signed in December in Korea, creating Random House JoongAng.
Innovations, along with unwavering cost discipline, were at the heart of business activities for the international magazine publisher Gruner Jahr in 2003. Although revenues declined to € 2.5 billion (previous year: € 2.8 billion) mainly due to portfolio streamlining and currency effects, and despite further steep investments, the company managed to improve its Operating EBITA to € 234 million (previous year: € 226 million). Gruner Jahr continued its policy of concentrating on the magazine business by selling its Central and Eastern European newspaper holdings to the Swiss publisher Ringier at year-end 2003. One important measure on the publishing front was the “Innovation Now!” initiative launched in spring of 2003. The program not only involved strengthening established titles, but also the launch of new titles and line extensions. Successful examples for this include “Femme Actuelle Shopping” and “Télé 2 semaines” in France and the new bilingual children’s magazine “National Geographic World” in Germany. Gruner Jahr also transferred established brands and magazine concepts to new markets, e.g. the children’s magazine “GEOLenok“ and the popular-science magazine “GEOfocus” to Russia. Market response was completely positive. G+J’s established brands in the core markets − including the German weekly “stern” and women’s magazine ”Brigitte,” and the people magazines “Voici” and “Gala“ in France − also had a good year in 2003. In the US, where the advertising market was already experiencing a slight recovery by year-end 2003, the division’s magazines outperformed the overall magazine business tangibly, registering high growth rates in ad sales.
In 2003, the Bertelsmann Music Group (BMG) continued to do business in a worldwide music market that continued to shrink. Yet, revenues stayed level with the previous year at € 2.7 billion. Revenues from Zomba, the music company acquired in 2002, were fully included for the first time this year. Operating EBITA amounted to € 110 million, after € 125 million in 2002. To ensure BMG’s continued success in the face of difficult times for the music industry, a decision was reached at year-end to merge the recorded music divisions of BMG and Sony Music Entertainment into a joint venture to be named Sony BMG and headquartered in New York. The closing of this deal is subject to regulatory approval. The integration of Zomba was achieved more rapidly than expected during the period under review. The assimilation of RCA and J Records into the RCA Music Group also went smoothly. BMG was able to increase its share of the global music market from 11.1 to 11.6 percent in 2003 due to a string of artistic and commercial triumphs. BMG’s creative excellence across diverse musical genres and regions was demonstrated by 17 top albums that sold in excess of two million copies each and 22 Grammy Awards. The year’s top sellers included releases from BMG stars such as Avril Lavigne, Pink, Britney Spears, Alicia Keys, R. Kelly, OutKast, Dido, Christina Aguilera, Justin Timberlake, Dave Matthews and Eros Ramazzotti, among others. In music publishing, BMG expanded its revenues by 33 percent, thanks to the integration of Zomba Publishing and to the large number of hits that BMG songwriters and composers were able to place in the worldwide charts in 2003.
In 2003, the international media services provider Arvato generated revenues of € 3.6 billion, slightly down from the previous year (€ 3.7 billion), but was able to improve its Operating EBITA to a record € 261 million (previous year: € 217 million). The Arvato Services unit again proved to be an important growth engine. The unit is comprised of Arvato Direct Services, one of the world’s biggest service providers in Customer Relationship Management, and Arvato Logistics Services, a global provider of Supply Chain Management. In Services, Arvato continued its strategy of internationalization: Existing service contracts with key customers in the IT and wireless logistics sectors were extended and new ones were signed. Arvato’s Services unit intensified its efforts to offer customers a concept that covers the handling of entire process chains. Arvato Print found itself facing massive fluctuations in capacity utilization, along with increasing pricing pressure. Nevertheless, the printing unit was able to bolster its leading position with investments in state-of-the-art technology. In the Arvato Storage Media unit, the storage media manufacturer Sonopress substantially increased its DVD volume while also expanding CD volume counter to the industry trend. In the IT sector, Arvato Systems furthered its structural transformation from an in-house IT service provider for Bertelsmann to a separate Profit Center and broadened its external customer base in core markets. Arvato also made significant progress in the building and extension of Arvato Mobile, a full-service wireless provider with the brands Handy.de and TJ Net.
Direct Group generated an earnings leap in 2003 despite a revenue decline to € 2.3 billion (previous year: € 2.7 billion): Operating EBITA, which in 2002 was minus € 150 million, improved to € 4 million, bringing the group to break-even. The contracting revenues reflect a market impacted by economic decline and consumer reluctance, a weak dollar, and portfolio streamlining. Meanwhile, the improved operating results are evidence of successful restructuring measures: a focus on core business, systematic withdrawal from pure e-commerce, and the increased delegation of responsibility to local management as part of strengthening the decentralized organization. In 2003, Direct Group sold its holdings in the US online bookseller Barnesandnoble.com and disposed of BOL in the Netherlands. Thanks to resolute cost management, the division achieved drastic cost savings, including by reducing its administrative expenditure. Parallel to this, Direct Group began enhancing the appeal of its Clubs by modernizing numerous Club stores and launching large-scale media campaigns, especially in France and Germany. Clubs all over the world revised and updated their catalogs, online presence, and customer service. As a result of these combined consolidation and modernization measures, the Clubs showed significantly improved earnings for the year. The great majority of Club operations were profitable in 2003. The German and British Clubs reduced their losses by approx. 70 percent, but did not yet reach break-even.
Results Breakdown in € millions
| 2003
| 2002
|
Operating EBITA by Division |
|
|
RTL Group | 503 | 465 |
Random House | 147 | 168 |
Gruner Jahr | 234 | 226 |
BMG | 110 | 125 |
Arvato | 261 | 217 |
Direct Group | 4 | (150) |
Total Operating EBITA by division | 1,259 | 1,051 |
Bertelsmann Springer | 0 | 71 |
Corporate / Consolidation | (136) | (186) |
Group Operating EBITA | 1,123 | 936 |
Amortization of goodwilland rights similar to goodwill |
|
|
- regular | (717) | (784) |
- impairments | (220) | (1,668) |
Special items | 547 | 2.807 |
Profit before financial result and taxes | 733 | 1,291 |
Financial result | (322) | (266) |
Taxes on income | (203) | (57) |
Net income before minority interests | 208 | 968 |
Minority interests | (54) | (40) |
Net income after minority interests | 154 | 928 |
Explanatory Notes:
Operating EBITA: Earnings before financial result, taxes, amortization of goodwill and rights similar to goodwill, and before special items.
Special items: Certain items of income and expense that are special due to their nature, amount or incidence and whose disclosure is relevant to explain the performance of the
enterprise or its segments for the period. According to IFRS, these items are to be disclosed separately and may include restructuring measures and capital gains / losses.
Revenues by Corporate Division in € millions
| Unternehmensbereich | 2003 | 2002 |
RTL Group | 4,452 | 4,362 |
Random House | 1,776 | 1,995 |
Gruner Jahr | 2,481 | 2,800 |
BMG | 2,712 | 2,714 |
Arvato | 3,639 | 3,668 |
Direct Group | 2,286 | 2,707 |
Total revenues by division | 17,346 | 18,246 |
Bertelsmann Springer | 158 | 731 |
Corporate / Konsolidierung | (703) | (665) |
Consolidated revenues | 16,801 | 18,312 |
About Bertelsmann AG
Bertelsmann, a media and entertainment company, commands globally leading positions in the major markets. Its core business is the creation of first-class media content: Bertelsmann includes RTL Group, Europe’s No. 1 in television and radio, as well as the world’s biggest book-publishing group, Random House, with more than 100 publishing imprints (Alfred A. Knopf, Bantam, Siedler Verlag, Goldmann). Gruner Jahr, the European No.1 in magazine publishing (Stern, Geo, Capital, Femme Actuelle, Family Circle, Parents) and the Bertelsmann Music Group (BMG) with its roughly 200 labels (RCA, Jive, J Records) and artists such as Alicia Keys, Dido and Pink also stand for creativity and powerful brands. Bertelsmann’s direct-to-customer businesses are bundled in Direct Group: book and music clubs with 32 million members all over the world. The Arvato division bundles the group’s media services, which include the expanding units Arvato Logistics Services and Arvato Direct Services (distribution, service centers, customer relationship management), along with state-of-the-art printers, storage media production and comprehensive IT-services.
For further questions, please contact:
Oliver Herrgesell
Senior Vice President Media Relations
Phone: 49 – 5241 – 80 24 66
oliver.herrgesell@bertelsmann.com
Information posted on the Internet (www.bertelsmann.com):
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