Bertelsmann reports solid business performance and strengthened portfolio

• Revenues for FY 2008 stable at €16.1 billion
• Operating EBIT of €1.6 billion
• Return on Sales continues high at 9.7 percent
• Group net income impacted by special items
• Significant reduction in debt
• Portfolio changes improve growth profile
• Focus for 2009 lies on safeguarding businesses

Bertelsmann recorded a solid business performance in 2008. Revenues from continuing operations remained stable in a difficult economic environment; operating profit decreased year on year, but remained at a high level. Debt was reduced significantly. The fiscal year saw extensive changes to the portfolio which have brought lasting improvement to Bertelsmann’s growth profile.

Bertelsmann’s Chairman & CEO Hartmut Ostrowski declared: “Bertelsmann made good progress in 2008. We disposed of shrinking parts of the business and are in a much better strategic position today than just twelve months ago. Bertelsmann now commands good or excellent market positions in nearly all of our businesses, and our operations are strong. At 9.7 percent, our operating Return on Sales was good – in fact, in retrospect one of our best ever.”

In 2008, Bertelsmann sold its 50 percent stake in the music joint venture Sony BMG and parts of the direct-to-customer operations that are bundled in Direct Group. At the same time, numerous promising businesses were launched, including the new music rights arm BMG Rights Management, the new rights trader UFA Sports and the “Deutschland Card” customer loyalty program. Bertelsmann also invested in new digital media and services and in promising businesses in the Asian territories through two venture capital funds.

Revenues from continuing operations in 2008, down just -0.5 percent at €16.1 billion, were largely stable and on par with the previous year (€16.2 billion; continuing operations only). Adjusted for portfolio and currency exchange effects, revenues increased by 1.3 percent. Earnings before Interest, Taxes and Special Items (Operating EBIT) came to €1,568 million after €1,717 million in 2007 (-8.7 percent), and reflect the economic downturn during the second half of the year. Operating Return on Sales was high at 9.7 percent (previous year: 10.6 percent). Group net income amounted to €270 million, down from the previous year (€405 million). The main cause for this, apart from restructuring measures taken towards the end of the business year as a precaution for 2009, were write-downs of the British TV business and at Direct Group. Cash flow from operations soared to a new high in 2008.

Hartmut Ostrowski added: “Our business performance and our solid financial foundation give us the necessary backing for the challenges ahead in 2009. The global economic crisis with its implications for consumer behavior and ad bookings will be a severe test for some areas of Bertelsmann, too. Our focus is currently on safeguarding our businesses, our high profitability and our liquidity. This primarily means cost discipline and restraint in our investments, but also an increased focus on gaining market share and entrepreneurial innovations. We feel well equipped with our broad business and geographic distribution and our entrepreneurial setup.”

The television, radio and TV production company RTL Group once again achieved high revenues and profits in 2008 and was able to buck the declining TV ad sales markets in many areas. The media and communications services provider Arvato recorded growth across almost all of its divisions and increased both its revenues and Operating EBIT. The Direct Group, which following a strategic reorganization is now concentrating its club and bookselling businesses on core markets in Europe, registered a dip in revenues, but increased its Operating EBIT. As ad sales markets declined and consumer confidence continued weak, the magazine publisher Gruner + Jahr reported declining revenues and operating profits, as did the Random House book publishing group, whose revenues and earnings were strongly impacted by negative currency exchange effects.

Investments during fiscal 2008, at €1,095 million, were slightly above the previous year’s level (€1,032 million). Monies were invested in property plant and equipment, intangible assets and financial assets, as well as in RTL Group’s purchase of a majority shareholding in the Greek media company, Alpha Media Group, and Arvato’s acquisition of the Spanish call-center operator, Qualytel.

Economic debt, which at Bertelsmann include the net financial debt, provisions for pensions, profit-participation capital, and the net present value of operating leases, was reduced by €1.1 billion to €6,627 million (previous year: €7,720 million) at the reporting date (December 31, 2008). Net financial debt alone was reduced by more than €800 million. The Leverage Factor, which quantifies the degree of debt as the relationship between economic financial debt and Operating EBITDA, was 3.2, slightly above the self-imposed target value of 3.0.

Bertelsmann’s Chief Financial Officer Thomas Rabe commented: “Our prudent financing policy has paid off once more: our financing is secure for the long term, and our credit rating is good. Thanks to circumspect financing transactions and available credit lines, our liquidity is already secure beyond the year 2010. Bertelsmann stands on a solid foundation.”

As in the preceding years, Bertelsmann will pay out profit participation to all eligible employees for the 2008 fiscal year. In May 2009, pursuant to the Terms & Conditions governing the Profit Participation Certificates, 15 percent of par value will be paid out on the Profit Participation Certificate 2001. The payout on “old” Profit Participation Certificates from the year 1992 will be 5.12 percent (previous year: 5.45 percent).

For 2009, Bertelsmann expects that the global economic crisis will put a strain on the economy and on the company’s business prospects. Overall, Bertelsmann expects revenues and operating profit to decline. The degree of year-on-year change will depend on the intensity and duration of the economic downturn.

Further key figures:

Special items: In the year under review, special items at the continuing operations amounted to €-676 million after €-409 million the previous year. They are mainly comprised of write-downs on goodwill totaling €-502 million and restructuring expenditure and other special items in the amount of €-173 million. In the U.K., business developments and the market situation resulted in an impairment of €-337 million at the TV channel Five. Other value adjustments were made at Direct Group in France and Portugal, to RTL Group’s radio activities in Germany, and at Arvato. There were restructuring measures and settlements across all corporate divisions. They were taken in connection with adjustments to economic developments and associated cost-reduction programs, as well as organizational reorganizations, in particular at Random House and Gruner + Jahr.

Cash flow: During the reporting period, cash flow from operations amounted to €1,789 million (previous year: €1,463 million). The increase was mainly due to lower tax payments and lower payment-relevant special items than in the 2007 fiscal year. The sustainable operating Free Cash Flow, adjusted for non-recurring items, came to €1,624 million (previous year: €1,714 million), which increased the Cash Conversion Rate to a record 105 percent, after 95 percent the previous year.

Balance sheet total: At the reporting date, December 31, 2008, the Balance sheet total came to €20.1 billion, putting it below the previous year’s €21.8 billion. Equity increased from €6.1 billion to €6.2 billion, yielding an equity ratio of 31.0 percent (previous year: 28.2 percent).

Employees: As in the preceding years, Bertelsmann recorded an increase in its worldwide employee count in 2008. At the end of the fiscal year, the Group had 106,083 employees (previous year: 94,490 in the continuing operations). The increase stems from organic growth and acquisitions.

Divisions

Despite increasingly difficult TV and radio advertising markets in several European countries, Europe’s leading entertainment network RTL Group grew its revenues by 1.2 percent overall to €5.8 billion (previous year: €5.7 billion) – thanks to ad sales in Germany, which increased against the market trend, and continued strong revenue growth at the TV production arm Fremantle Media. RTL Group’s operating profit amounted to €927 million, compared to the previous year’s €978 million (-5.2 percent). On a comparable basis (taking into account a €96 million fine imposed on IP Deutschland by the Federal Cartel Office in 2007), RTL Group’s operating profit increased by 5.0 percent despite a difficult market situation and programming investments made by the French channel M6 in connection with the Euro 2008 soccer championships. Return on sales reached 16.1 percent (previous year: 17.1 percent). At the end of the year, RTL Group had 12,360 employees (December 31, 2007: 11,392). The Mediengruppe RTL Deutschland outperformed the German TV advertising market and significantly increased its share of the net market. The German family of channels generated growing revenues and profits. Its audience shares decreased slightly in a year of major sporting events which were televised by the country’s public broadcasters; however, in the 14- to 49-year-old demographic, the Mediengruppe RTL Deutschland remained the clear market leader. The international production firm Fremantle Media continued on a steep growth curve, especially thanks to its successful U.S. business. It expanded its operations internationally. In France, Groupe M6 kept its revenues nearly stable in a significantly decreasing TV advertising market. Profits were down as a result of the program investment for the Euro 2008 soccer championships; this resulted in record viewer ratings for M6’s live broadcasts of the football matches. Despite the accelerated audience fragmentation in France, the combined total audience share of the main channel M6 and the free DTT channel W9 increased year on year. The British channel Five saw a substantial impairment of goodwill (€337 million) in 2008, reflecting a revised outlook for the U.K. television advertising market. 

RTL Group continued its strategic focus on strengthening its families of channels, increasing non-advertising revenues, and expanding into promising growth markets. The company also pursued its goal of reaching viewers on all available channels and platforms in order to fully exploit the opportunities opened up by digitization. The digital channels launched by RTL Group in several European countries showed a positive development. The group expanded its online portfolio, along with activities such as catch-up TV and branded mobile offerings. During the period under review, RTL Group acquired a majority stake in the Greek broadcasting group Alpha Media, which includes the country’s main channel Alpha TV. In Germany, the rapidly growing social network “Wer-kennt-wen.de” was bought up step by step, and is now a wholly owned subsidiary, while the home-shopping channel RTL Shop was sold. RTL Group also re-entered sports rights trading in 2008, setting up a new agency under the well-established name of UFA Sports.

Random House, the world’s largest trade book publisher, reported a drop in revenues and operating EBIT for 2008. Return on sales was 8.0 percent (previous year: 9.4 percent). Random House’s revenues fell by 6.3 percent to €1.7 billion (previous year: €1.8 billion), primarily due to negative exchange rate effects. Adjusted for these and for acquisitions, revenues remained stable despite declining consumer confidence and flat book markets due to the global economic crisis. Declines in North America, especially in the second half of the year, were largely offset by higher book sales and increased market shares in key European markets. Operating EBIT declined by 20.8 percent during the period under review, from €173 million to €137 million, further reflecting developments in the economy, the marketplace and currency exchange rates, as well as higher author costs. The publishing group had 5,779 employees at the end of the year (December 31, 2007: 5,764). The 2008 business year brought a management changeover at the corporate level and a realignment of the publishing divisional structure in the U.S. On June 1, 2008, Markus Dohle became Chairman and CEO of Random House. In December, five adult publishing groups were merged into three units (Crown Publishing Group, Knopf Doubleday Publishing Group, and Random House Publishing Group); Random House Children’s Books remained unaffected by the reorganization. These measures resulted in significant one-time costs. The company also signed new third-party sales and distribution agreements and stepped up its digital publishing activities, including a comprehensive e-book expansion. The measures will position Random House for long-term sustainable growth. The company plans to intensify its market and customer focus while continuing to invest in publishing quality. The year’s biggest bestseller was Christopher Paolini’s novel “Brisingr,” which in just over three months sold more than four million copies for Random House in North America, Germany and the U.K. In the U.S., Random House imprints placed 265 titles on the “New York Times” national bestseller lists, including 25 at number one. Among them were “The Appeal” by John Grisham, TV news icon Barbara Walters’ memoirs “Audition,” and hardcover and paperback editions of “The Audacity of Hope” and “Dreams from My Father” by U.S. President Barack Obama. E-book sales increased tremendously. The e-book list will be expanded to 15,000 new and backlist titles by the end of 2009. The Random House Group U.K. again placed more titles on the “Sunday Times” bestseller lists than any other publisher, and increased its market share during the period under review. In the German-speaking countries, Verlagsgruppe Random House generated record revenues, resulting in a higher market share. The year’s bestsellers included nonfiction by Helmut Schmidt and Richard David Precht and fiction by Elizabeth George and Charlotte Link. Random House Mondadori also delivered a strong performance in the Spanish-speaking territories, including the million-copy bestselling Ken Follett fiction hardcover, “Un mundo sin fin.” During the year, Random House acquired several publishing companies, including Prestel-Verlag and the Hugendubel Verlage in Germany as well as Watson-Guptill Publications in the U.S. In South Africa, a merger of Random House South Africa and Struik Publishing created Random House Struik, an immediate market leader. Random House authors won a number of prestigious awards in 2008, including a National Book Award (Fiction) in the U.S. for “Shadow Country” by Peter Matthiessen. Nine of the “Ten Best Books of 2008” chosen by the “New York Times Book Review” were Random House, Inc. titles. 

The leading European magazine publisher Gruner + Jahr recorded a year-on-year decline in revenues in 2008, with operating EBIT also lower. Return on sales amounted to 8.1 percent (previous year: 9.3 percent). A slump in advertising in the second half of the year and continuing consumer restraint led to a 2.2 percent decline in revenues to €2.8 billion (previous year: €2.8 billion). Germany, Spain, France, and Poland were the primary markets affected. G+J saw business improve in China year-on-year. Operating EBIT came in at €225 million (-14.8 percent) versus €264 million last year. This decline was also mainly due to muted advertising spending in consequence of the global economic crisis. The number of employees was 14,941 at year-end (December 31, 2007: 14,448). Gruner + Jahr responded to the adverse market conditions principally with cost control measures and by reviewing its international magazine portfolio. The publications “Park Avenue” in Germany, “Gala” in the Netherlands, “Life & Style” in Russia, and “Bien dans ma vie” in France were discontinued due to the lack of business prospects. Significant one-time charges accrued in the period under review through these steps. The consumer electronics unit of Motor Presse Stuttgart and the magazine “Frau im Spiegel” were sold in the course of the fiscal year. At the beginning of 2008, Gruner + Jahr acquired the second half of “Financial Times Deutschland.” The company’s German business publications will be produced by a shared editorial office in Hamburg from now on, the former business editorial offices in Munich and Cologne being closed. Gruner + Jahr continued to invest in new magazines, pressing forward vigorously with the expansion of its many websites. In France the new women’s monthly “Femmes” was launched, while G+J’s Chinese joint venture Boda launched its own monthly magazine entitled “Baby World.” The “Geo” magazine brand expanded into six countries – India, Brazil, Finland, and the three Baltic countries. With the acquisition of the performance marketing company Ligatus, Gruner + Jahr strengthened its online marketing. Funds were invested in Internet portals such as “Brigitte.de” in the women’s segment as part of the strategic “Expand Your Brand” initiative. This website for the “Brigitte” family of brands experienced major traffic growth during the period under review, enhancing its market position considerably. The websites of French subsidiary G+J Prisma Presse saw a jump in visitor numbers. Gruner + Jahr also launched the “Parenting Network,” a multinational online project targeted at parents. G+J EMS posted a double-digit percentage gain in Internet advertising revenues for the period under review, ahead of the market average. G+J’s core publications in Germany and France were stable despite the difficult market. “Gala,” “Neon,” “Brigitte Woman” and others performed well in Germany, along with “Voici” and Prisma Presse’s TV magazines in France. In the holdings business, Dresdner Druck- und Verlagshaus (Sächsische Zeitung) developed in a pleasingly stable manner in 2008. The print business in the U.S. was considerably and negatively impacted by the recession in the U.S. newspaper market. The Prinovis gravure joint venture was impacted by the strong volume decline in Continental Europe. In addition, a decision to shut down the Darmstadt plant was made at the beginning of 2008.

International media and communications service provider Arvato posted higher revenues and operating EBIT in fiscal year 2008. Return on sales amounted to 7.4 percent (previous year: 7.4 percent). Revenues increased by 1.5 percent to €5.0 billion (previous year: €4.9 billion). All three of the company’s major business units – Arvato Print, Arvato Services, and Arvato Digital Services – contributed to this outcome. Growth was generated, primarily on an organic basis, through new services, customer acquisition and increased international activity. In this context, operating EBIT rose by 0.8 percent to €369 million (previous year: €366 million). The number of employees rose to 62,591 at year-end (December 31, 2007: 51,846). Printing services unit Arvato Print performed well on balance, generating revenue and earnings increases despite tough conditions in its core markets. The offset printing business performed strongly, as the Mohn Media Group pushed its development as an integrated service provider relating to print production, staying on track for growth. The Prinovis gravure joint venture was impacted by the strong volume decline in Continental Europe. In addition, a decision to shut down the Darmstadt plant was made at the beginning of 2008. The service businesses bundled under Arvato Services benefited from continuation of the trend towards outsourcing, good financial services business and from strong, stable service center demand. 

The unit also posted higher revenues and earnings. The acquisition of call center service provider Qualytel improved the unit’s market position in Spain and South America, while the “Germany Card” (“Deutschland Card”) multi-partner program got off to a promising start in Germany. There was increased cooperation with the public sector in the United Kingdom as Arvato Services won the Sefton Metropolitan Borough Council as its second British municipal customer. The newly realigned storage media unit Arvato Digital Services likewise posted higher revenues and earnings year-on-year, due mainly to stronger business in the U.S. Demand declined in Europe overall and Germany in particular, especially in the fourth quarter. DVD output increased again over the previous year, while CD production declined slightly due to persistent weakness of the music industry. Market share was gained in both segments even as the market shrank thanks to increasing concentration on offering integrated storage media solutions. In Germany and the U.S., Arvato Digital Services further increased production capacity for the high-resolution Blu-ray format. Services for high-tech companies were also systematically expanded. Measures included assuming assets and customers from a former competitor. The two non-core businesses Arvato Mobile and Empolis were sold at fiscal year-end. One-time charges were incurred in 2008 for the mobile communications unit, now sold, and at Prinovis. The direct sales organization Inmediaone performed below expectations in 2008 due to sales staff shortages, but IT service provider Arvato Systems generated ongoing growth.

The club and bookselling businesses operated by Direct Group – which, following a strategic restructuring, are now focused on the German- and French-speaking territories, Spain and Portugal, Italy and the Ukraine – recorded a dip in revenues and improved operating EBIT for 2008 in these markets. Return on sales improved to 1.7 percent (previous year: 1.4 percent). At about €1.3 billion, revenues from the continuing operations were 3.7 percent below previous year (€1.3 billion). The clubs and bookstores were able to stand their ground relatively well in flat book markets. Losses in the traditional club business (with purchase commitment) were largely compensated through diversification businesses. Operating EBIT increased to €22 million (previous year: €18 million). Cost management, an expanded product range and growth in Eastern European markets more than compensated for the negative economy, especially in Spain and France. At the end of the year, 9,268 persons were employed (December 31, 2007: 10,050). In line with the new strategic direction, the club businesses in North America, the U.K., and the Netherlands/Flanders were sold during the period under review. The club activities in Asia, including the book club and the 21st Century bookselling chain in China, were discontinued for lack of economic prospects. For other smaller clubs in markets outside the new strategic focus, the sales process was still ongoing at the reporting date. The clubs in Germany and France report a largely stable performance in 2008. The German club turned a slight profit for the third year running, primarily thanks to growing customer uptake of its offers beyond books and music such as travel, insurance and mobile services. In France, Direct Group pursued the integration of the former Librairies Privat and Forum Alsatia bookselling chains under the Chapitre.com umbrella. In Spain, the group advanced the establishment of a bookselling chain under the name of Bertrand, an established brand in neighboring Portugal. In Portugal itself, Direct Group acquired the historic Pergaminho publishing group. During the year under review, significant restructuring costs were incurred for the club and retail operations in France and the Iberian peninsula. Direct Group continued to counter the ongoing decline in club membership in its core markets by strategically expanding the value chain tying in to its clubs, including increased online activities. It also tested softer alternatives to the traditional purchase commitment model, especially in the German-speaking countries.

Overview of key figures (€ million, continuing operations)

	2008	2007
Consolidated revenues	16,118	16,191
Operating EBIT by division Corporate/Consolidation Operating EBIT	1,680 (112) 1,568	1,799 (82) 1,717
Special items	(676)	(409)
EBIT (Earnings before interest and taxes)	892	1,308
Financial result	(427)	(458)
Earnings before taxes from continuing operations	465	850
Income taxes	(52)	(50)
Earnings after taxes from continuing operations	413	800
Earnings after taxes from discontinued operations	(143)	(395)
Net income	270	405
attributable to: Share of profit of Bertelsmann shareholders	142	216
attributable to: Minority interest	128	189

Investments	1,095	1,032
attributable to: continuing operations	1,065	989

	Balance as of December 31, 2008	Balance as of December 31, 2007
Economic debt	6,627	7,720
Employees	106,083	94,490

The corresponding figures for the previous period have been adjusted in accordance with IFRS 5.

*continuing operations

About Bertelsmann AG

Bertelsmann is an international media company encompassing television (RTL Group), book publishing (Random House), magazine publishing (Gruner + Jahr), media services (Arvato), and media clubs (Direct Group) in more than 50 countries. Bertelsmann’s claim is to inspire people around the world with first-class media and communications offerings – entertainment, information and services – and occupy leading positions in its respective markets. The foundation of Bertelsmann's success is a corporate culture based on partnership, entrepreneurial spirit, creativity, and corporate responsibility. The company strives to bring creative new ideas to market and create value.

For further questions, please contact:

Andreas Grafemeyer

Senior Vice President Media Relations

Phone: +49 – 52 41 / 80 24 66

andreas.grafemeyer@bertelsmann.de

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