Bertelsmann Significantly Improves Results in 2004

- Operating EBIT rises to €1,429 million
- Consolidated revenues up by 1.9 percent after adjusting for currency and portfolio effects
- Return on sales improved to 8.4 percent
- Net income before minority interest rises to €1,217 million
- Market positions enhanced in important corporate divisions
- GAIN growth initiative produced results

Bertelsmann significantly increased its operating result in 2004. Operating EBIT climbed to €1,429 million (previous year: €1,026 million). The RTL Group, BMG and Arvato divisions were key contributors to this rise in earnings. Consolidated revenues amounted to €17.0 billion after €16.8 billion in 2003. Based on these positive revenues and earnings, return on sales improved year on year, from 6.1 percent to 8.4 percent. Net income before minority interest totaled €1,217 million (previous year: €208 million). At balance sheet date, Bertelsmann had 76,266 employees (end of 2003: 73,221).

In 2004, Bertelsmann focused on improving profitability and strengthening the market positions of important corporate divisions. Among these accomplishments: the merger of BMG and Sony Music’s recorded music business to form Sony BMG Music Entertainment was finalized. The agreements governing Gruner + Jahr’s acquisition of a majority stake in Motor-Presse Stuttgart and the gravure joint venture between Arvato, Gruner + Jahr and Axel Springer AG are pending antitrust approval. The “Growth and Innovation” (GAIN) initiative begun in December 2003 is well underway with numerous projects and is already yielding initial results in the divisions.

“Bertelsmann delivered a gratifying overall business performance and markedly improved its profitability. Important transactions served to shape the group’s portfolio towards the future. We are sticking to our target ROS of 10 percent, so that we can finance future growth on our own,” said Bertelsmann AG Chairman & CEO Gunter Thielen.

This significant increase in Operating EBIT was due to a positive business performance in nearly all corporate divisions, as well as the first-time full consolidation of the M6 broadcasting corporation in France, which contributed €92 million. Excluding this effect, Operating EBIT increased by 30.3 percent year on year.

Consolidated revenues for the year under review amounted to €17.0 billion (previous year: €16.8 billion). This increase was based on organic growth of 1.9 percent as well as portfolio effects of 1.7 percent. However, exchange rate fluctuation, especially the weakening of the U.S. dollar against the euro, reduced revenues by 2.3 percent.

Taking into account the financial result and taxes, net income before minority interest rose considerably to €1,217 million in 2004 (previous year: €208 million). Based on the revised IFRS guidelines, regular amortization of goodwill and rights similar to goodwill with indefinite useful life no longer applies as of January 1, 2004. In 2003, such amortization had impacted net income by minus €632 million. These assets are now subjected to an annual impairment test instead and amortized if necessary. The application of these guidelines, along with the markedly improved Operating EBIT, was the main reason behind this increase in net income.

All of the key financial indexes are in line with the defined targets. Bertelsmann revised its corporate finance guidelines in fiscal year 2004 and now uses an expanded definition of economic debt. The switch means thatthe company now recognizes and treats pension provisions and profit participation capital as economic debt as well. By using this broader definition Bertelsmann is also conforming to the approach used by international rating agencies in assessing a company’s financial strength. Economic debt – the sum total of net financial debt, pension provisions and profit-participation capital – was reduced from €3.2 billion to €2.6 billion in 2004.

“All key financials were improved and are comfortably within our conservative financing guidelines. Bertelsmann has a very solid financial foundation, and has thus added strategic maneuverability for further developing the company,” said Siegfried Luther, Vice Chairman of the Bertelsmann AG Executive Board and Chief Financial Officer.

Based on these positive developments in the operating profit, Bertelsmann will again pay out profit participation to a large number of German employees in fiscal 2004, as it did in 2003.

In May 2005, 15 percent of par value will again be paid out on Bertelsmann Profit Participation Certificates 2001, as stipulated by the terms and conditions governing Bertelsmann PPCs. The payout on “old” Bertelsmann Profit Participation Certificates from 1992 will amount to 8.42 percent (previous year: 6.92 percent).

The Executive Board has a confident view of fiscal 2005. “We expect a continued overall increase in revenues and earnings. All corporate divisions anticipate higher operating profits. We want to create jobs, including here in Germany,” Gunter Thielen declared.

Other key financials

Special items not included in the Operating EBIT amounted to €318 million (previous year: €339 million). Income was generated primarily by a gain from merging BMG’s recorded music division into the joint venture Sony BMG and the sale of the Bertelsmann Building in New York. Restructuring measures at BMG had an especially negative impact.

Investments in property, plant and equipment, financial assets, and intangible assets amounted to €930 million (previous year: €761 million). Arvato invested – above and beyond regular investment activities – in new gravure projects in the U.K. and Italy.
Additionally, RTL Group acquired a stake in the Portuguese media company Grupo Media Capital.

Net cash from operating activities rose to €1,654 million in 2004 (previous year: €1,362 million), thanks to the substantial increase in operating profit. Group cash and cash equivalents increased to €2,092 million at December 31, 2004 (previous year:
€1,642 million).

Total assets increased by €806 million to €21.0 billion in 2004, due primarily to the full
consolidation of M6 and the formation of the Sony BMG joint venture. The equity ratio increased by 4.3 percentage points year on year, to 42.2 percent, putting it well above Bertelsmann’s target of 25 percent.

At the end of fiscal 2004, the Bertelsmann group had 76,266 employees worldwide (previous year: 73,221 employees). Apart from organic growth, this increase of 3,045 employees is attributable to the full consolidation of M6 and other corporate acquisitions.

Corporate divisions

RTL Group, Europe’s leading television, radio, and TV production group, showed a favorable development in fiscal 2004. The company increased its revenues to €4.9 billion (previous year: €4.5 billion), largely due to the first-time full consolidation of the French channel M6. Revenues remained stable from an organic point of view. Operating EBIT rose considerably to €668 million (previous year: €503 million). This enhanced performance was attributed to the M6 consolidation effect as well as to improved operating profitability in a number of divisions. All RTL Group channels defended their strong market positions. RTL Group’s strategic business development centered on continuing its internationalization and creating larger “families” of channels to achieve greater market penetration. Belgium, for instance, saw the successful launch of Plug TV, the country’s third RTL Group channel. RTL Televizija was founded in Croatia. RTL Group also bought a stake in the Portuguese media company Grupo Media Capital. In Germany, RTL Television kept earnings on a par with last year’s high levels, despite a difficult TV advertising market and a slight decline in revenue. M6 in France delivered a record business performance. The TV channel Five in the U.K. achieved considerable enhancements to its operating business, and the production arm Fremantle Media significantly improved its profitability, increasing both its revenue and result.

Random House publishing group further enhanced its leading market position and sold more books worldwide than any other trade book publisher. The company increased its stature as the one truly global book publisher with its growing presence in Asia. Despite a sluggish book industry economy internationally and a weakened U.S. dollar exchange rate compared to the euro, revenues expressed in euros remained stable at €1.8 billion (previous year: €1.8 billion). Operating results increased to €140 million (previous year: €115 million). In North America, Random House for the sixth consecutive year placed the most titles of any U.S. publisher on the New York Times national bestseller lists. The year’s publishing highlights included “My Life” by former President Bill Clinton and Dan Brown’s “The Da Vinci Code”, which have sold multi-million hardcover copies. The London-based Random House Group, which comprises the company’s U.K., Australia, New Zealand, and South Africa publishing operations, had another record year, with substantial market share gains in the U.K. Verlagsgruppe Random House in Germany successfully completed the editorial and organizational integration of Heyne, which it acquired in 2003. Random House Mondadori enjoyed a highly successful turnaround to profitability in Spain and Latin America. The Japanese joint venture Random House Kodansha published forty-three books in its first full year of operation. The Random House Joong Ang joint venture in Korea commanded a leading position in its market immediately following its launch in January 2004, and published several consecutive bestsellers.

For Europe’s biggest magazine publisher Gruner + Jahr, 2004 was a year of innovation campaigns and expansion to important markets. More than 20 new titles were launched worldwide – more than ever before in the publisher’s history. Revenues declined slightly to €2.4 billion (previous year: €2.5 billion). This decline was primarily the result of currency effects and changes to the portfolio. Adjusted for these one-time items, Gruner + Jahr increased its revenues. The operating result declined to €210 million (previous year: €233 million), due primarily to publishing investments in new magazine titles. In France, the two bi-weekly TV listings magazines “Télé 2 Semaines” and “TV Grandes Chaînes” got off to an excellent start, making them two of the most successful new launches in recent years. The same applies for the people magazine “Gala” in Spain, a joint venture with the Vocento newspaper group that made its debut in September. In Poland, G+J took the lead in the advertising sales market for the first time since its Polish publishing arm was established. In Germany, Gruner +Jahr launched “Geo kompakt,” the ninth title in the German Geo family. The publisher’s established brands in Germany stood their ground in a difficult market. In the U.S., comprehensive structural reorganization was initiated to improve profitability. The contract governing Gruner + Jahr’s acquisition of a majority stake in Motor-Presse Stuttgart is still pending antitrust approval.

Bertelsmann Music Group (BMG) delivered a positive business performance in yet another difficult year for the global music industry. BMG markedly improved its operating result to €162 million (previous year: €54 million) against slightly decreased revenues of €2.5 billion (previous year: €2.7 billion). Additional cost-cutting measures and a focus on the creative business contributed to this improvement. BMG’s financials for fiscal 2004 include the results of BMG’s recorded music business from January through July 2004 and half of the results from the Sony BMG joint venture from August through December 2004. They also include the results of BMG Music Publishing (which remains a wholly owned Bertelsmann subsidiary) for the full fiscal year. In strategic terms, the formation of the Sony BMG Music Entertainment joint venture was the key event of the year. The joint venture’s establishment in August underscores Bertelsmann’s commitment to music as a core business. Sony BMG improved its competitive position and is the creative home of a large number of international superstars, major local acts and talented newcomers. 28 Grammys document the enormous artistic potential of Sony BMG. The integration is scheduled to conclude in 2005. BMG Music Publishing had the most successful fiscal year in its history, once again generating double-digit return on sales. Creative triumphs all over the world contributed to this.

The international media services provider Arvato had an excellent year in 2004. Despite difficult macroeconomic conditions, revenues rose to €3.8 billion (previous year: €3.6 billion). The operating result improved considerably to €310 million (previous year: €261 million). All business units of the division closed the year with a profit. The service companies in the Arvato Services unit showed strong growth. Central elements in the division’s growth strategy include forceful internationalization, as well as enhancing and safeguarding its leading market positions. In spring, Arvato Services bought up the majority of shares in Phone Assistance, a Moroccan Call Center Services provider. Service operations in other countries including India, Poland, Ireland and Turkey were also built or expanded. After the end of the fiscal year, the British council of East Riding and Arvato signed an agreement to the effect that the Bertelsmann division would take over parts of the council administration. An agreement was also signed with the Infoscore group in Baden-Baden to merge activities in the field of integrated data, information and receivables management in a joint venture.
Arvato Print’s business showed consistently effective plant utilization. Sonopress, a manufacturer of storage media, did well in its various markets. Arvato Mobile made progress in building and expanding its mobile services.

Direct Group with its international club business activities generated improved results in 2004, though revenues continued to decline, to €2.2 billion (previous year: €2.3 billion). Operating EBIT rose to €32 million. The previous year, following a successful turnaround of the business, it was at €4 million. These positive developments are attributable to higher results achieved by a number of clubs, as well as continued cost savings. Adjusted for currency effects, the revenue decline slowed down considerably from the trend in previous years. The club businesses in Southern and Western Europe continue their successful direction. The French club France Loisirs announced that it would be taking over 50 percent of the French book club “Grand Livre du Mois” to strengthen its core business. The large U.S. book and music clubs Bookspan and BMG Direct also showed positive development and were able to improve their profitability significantly. Restructuring has been initiated at the German Club and BCA in the U.K. For Direct Group, 2004 was a year of innovations and of expansion to new growth markets, especially in Eastern Europe and Asia. The Family Leisure Club acquired in the Ukraine shows strongly profitable growth. In Korea, club activities are now run by a joint venture with Korea’s Daekyo company. In China, the extension of the store network as part of the “21st Century” joint venture proceeds swiftly.

Figures at a Glance (in € millions)

	2004	2003 (adjusted)
Revenues	17,016	16,801
Operating EBIT by divisions Corporate/Consolidation	1,522 (93)	1,170 (144)
Operating EBIT	1,429	1,026
Special items	318	339
EBIT (Earnings before interest and taxes)	1,747	1,365
Regular amortization of goodwill	–	(632)
Net interest	(78)	(95)
Other financial expenses and income	(189)	(227)
Income taxes	(263)	(203)
Net income before minority interest	1,217	208
Minority interest	(185)	(54)
Net income after minority interest	1,032	154

Investments

930

761

	At Dec 31, 2004	At Dec 31, 2003
Economic Debt	2,632	3,227
Employees	76,266	73,221

Definition of Operating EBIT: Operating EBIT refers to earnings before interest, taxes and special items. 

About Bertelsmann AG

The media company Bertelsmann 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, Goldmann). Gruner + Jahr, the European No.1 in magazine publishing (Stern, Geo, Capital) and Sony BMG Music Entertainment with artists such as Anastacia, Alicia Keys, Beyoncé, Dido and Usher also stand for creativity and powerful brands. Bertelsmann’s direct-to-customer businesses are bundled in Direct Group: book and music clubs with more than 30 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 – 52 41 – 80 24 66
oliver.herrgesell@bertelsmann.com

 Information posted on the Internet (www.bertelsmann.com):
- Press releases and presentation charts for the Annual Press Briefing
- Bertelsmann Annual Report 2004 for download (PDF)
- Video recording of the Annual Press Conference
- Photos of all Executive Board members under Press / Photos
- Bios of all Executive Board members

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Bertelsmann_Results_2004_en.pdf	173 kB