Bertelsmann second-half turnaround yields FY’09 profit

• Consolidated revenues of €15.4 billion
• Operating EBIT of €1.4 billion, again at a high level
• Savings of around €1 billion have been realized
• Net financial debt reduced by almost 20 percent to €2.8 billion

Bertelsmann, the international media and services group, has steered a successful course in a difficult market situation and ended fiscal year 2009 with a profit. After a cost and efficiency program was implemented across the group in the first half year and all identifiable risks were taken into account on the balance sheet, a turnaround was achieved in the second half-year. The cost-cutting program achieved its full effect and the businesses – in particular advertising – recovered towards the end of the year. Revenues, operating EBIT and consolidated net income in the second half year were ahead of the first half-year and above the previous year in terms of earnings. As a result of this, the decline in revenues and operating income for the full year was comparatively moderate; Bertelsmann was able to cushion itself to a large extent against the effects of the economic crisis. Ultimately the company achieved a net profit. In fiscal 2009 Bertelsmann was able to gain market share in different sectors and regions. Debts were significantly reduced and the core businesses were developed through targeted investments. For 2010, the year in which Bertelsmann celebrates its 175^th anniversary, the company is expecting to achieve stable revenues and operating income, and significant growth in net income in an economic environment which will continue to be challenging.

The CEO of Bertelsmann AG, Hartmut Ostrowski, said: “Bertelsmann has proven itself to be robust and flexible. Like other media companies we felt the global effects of the economic crisis, particularly in the areas dependent on advertising. But Bertelsmann responded quickly and in a decentralized way, aligned to their markets and to its customers. We have reduced costs as never before, while maintaining, or even strengthening, our market positions. We have enhanced our processes and productivity. Within just a few months we achieved savings of around one billion euros, which will continue to have a lasting effect beyond 2009. At the same time we further increased our digital revenues – closely synchronized with the respective businesses, in line with our strategy and our company’s structure. All corporate divisions had a role in this achievement. Today, Bertelsmann is fitter than it was a year ago and is well-positioned for future growth.”

In the face of the economic crisis, Bertelsmann recorded consolidated revenues of €15.4 billion in 2009, following €16.2 billion in the previous year (-5.4 percent). Adjusted for portfolio and exchange rate effects, revenues fell by 5.8 percent. Profits before interest, tax and special items (Operating EBIT) remained at a high level at €1,424 million, down from €1,575 million in the previous year (-9.6 percent). The operating return on sales was 9.3 percent (previous year: 9.7 percent). In 2009, Bertelsmann recorded impairment losses in the TV businesses in the U.K. and Greece and the gravure printing group Prinovis, among other areas. As part of the cost and efficiency program, businesses were restructured in all corporate divisions. The special items came to €730 million (previous year: €676 million). Despite these adjustments, Bertelsmann achieved a net income of €35 million (previous year: €270 million).

Hartmut Ostrowski: “We are now shifting the focus of our strategic work. Where the main priority in 2009 was cost and cash management, we will concentrate in this year on steering a course for growth. The emphasis here will be on continuing to develop the wide range of digital activities in all divisions and to gain market share. The digitization and the convergence of digital devices offer enormous potential for a company like Bertelsmann, which provides high-quality content as well as a wide range of services. Bertelsmann makes its content available through all relevant channels, supported not only by our strong brands but also by our expertise in digital services. Throughout the 175-year history of our company, we have repeatedly shown that we can leverage our core competences to develop new businesses and to lead them to market fulfillment and success.”

In the past fiscal year, the TV, radio and television production group RTL Group continued to be highly profitable, although revenues and profits were below the previous year’s level due to double-digit declines in the TV advertising markets in Europe. In a difficult economic environment, Random House, the world’s leading trade-book publishing group, generated stable revenues in 2009 and maintained its operating EBIT. The magazine publisher Gruner + Jahr recorded a year-on-year decline in revenues and operating EBIT in 2009, but was largely able to cushion the impact of the declining markets. In 2009 Arvato fell slightly short of the high revenue levels achieved in the previous year, primarily due to lower order volumes and customer insolvencies; operating EBIT was also down. The club and bookselling businesses operated by Direct Group recorded lower revenues in fiscal year 2009 against the backdrop of the recession and continued falling membership levels; operating EBIT almost reached the previous year’s level.

Thanks to a high operating free cash flow, net financial debt was reduced by €652 million and totaled €2,793 million as of December 31, 2009 (December 31, 2008: €3,445 million). This represents a reduction of almost twenty percent. The more broadly defined economic debt totaled €6,024 million, down €603 million from the previous year. This not only encompasses net financial debt but also provisions for pensions, profit participation capital and present value of operating leases.

Bertelsmann Chief Financial Officer, Thomas Rabe: “We are very happy with the high operating free cash flow and the significant reduction of net financial debt by €652 million to €2.8 billion. The ratio of economic debt to operating EBITDA was stable at 3.15, following 3.17 in the previous year, and was thus approximately at the level of the maximum of 3.0 defined by us. We want to further reduce this leverage factor and maintain it below 3.0 in the long term in order to create financial leeway and strengthen our rating position. The strict cash orientation was the right strategy in the crisis. Overall we have made great progress over the last few years with our operating focus on cash. This is crucially important to Bertelsmann’s strategic flexibility and the necessary self-financing of business growth.”

In May 2010, under the terms and conditions of the 2001 profit participation certificates, the payout will again be 15 percent of notional value. The payout for the “old” profit participation certificate from 1992 will be 3.97 percent (previous year: 5.12 percent).

Bertelsmann’s planning for fiscal year 2010 is characterized by lingering uncertainties in the markets. At this time, economic conditions are expected to begin stabilizing in 2010, although no sustainable recovery is foreseeable as yet. Likewise, visibility in the advertising markets remains low. In view of this, Bertelsmann expects revenues and operating profits to remain stable; the group result should increase significantly.

Further key figures:

Special items: Special items came to €-730 million in fiscal year 2009, from €-676 million in the previous year. These consisted of impairment losses totaling €-319 million, expenses for restructuring and valuation allowances on assets of €-424 million and a positive net balance of capital gains and losses of €13 million. In particular, at Prinovis there were valuation allowances on assets in the amount of €-111 million. The effects of the economic crisis also resulted in a reevaluation of the earnings expectations of individual business areas, such as the TV businesses in Great Britain and Greece.

Cash flow: In the period under review, Bertelsmann generated net cash from operating activities of €1,777 million (previous year: €1,789 million). The Group’s sustainable operating free cash flow adjusted for one-time effects was €1,771 (previous year: €1,624), resulting in a cash conversion rate of 125 percent compared with 105 percent for the previous year.

Total assets: Total assets came to €19.4 billion as of December 31, 2009 (December 31, 2008: €20.1 billion). The effects of the economic crisis and the measures undertaken in response resulted only in slight changes to the balance sheet structure. Equity fell from €6.2 billion to €6.0 billion due to the decline in operating EBIT and special items, in particular goodwill impairments. This constitutes an equity ratio of 30.9 percent (previous year: 31.0 percent).

Investments: Investments in 2009 were €662 million (previous year: €1,095 million) and reflect the cautious investment policy in a year of economic crisis.

Employees: At the end of the fiscal year, the Group had 102,983 employees worldwide (previous year: 107,154). The decline can be attributed to portfolio changes and the implementation of measures from the cost and efficiency program.

Divisions:

RTL Group, the leading European entertainment network, continued to be highly profitable in 2009, although revenues and profits were below the previous year’s level due to double-digit declines in the TV advertising markets in Europe. Revenues for the most recent fiscal year were €5.4 billion and therefore 6.3 percent down from the previous year (€5.8 billion), operating EBIT was €793 million, compared to €927 million in the previous year (-14.5 percent). The return on sales was 14.7 percent (previous year: 16.1 percent). At the end of the year the RTL Group had a total of 12,520 employees (December 31, 2008: 12,360). For the RTL Group, 2009 was characterized by cost-cutting in order to compensate for revenue losses sustained in the advertising market. In particular, the company reduced its program costs but also made cuts in other areas and thereby lowered its cost basis considerably. Despite the cost-cutting measures, the various channels within the RTL Group were able to increase their audience market shares in almost all core markets. For example, Mediengruppe RTL Deutschland consolidated its market leadership. In the Netherlands and Belgium, the families of programs also gained audience market shares. In France, slight declines at the main channel M6 were more than compensated by increases in audience figures for the digital niche channel W9. In the U.K., the Five family of channels recorded a small rise in their audience market share in an increasingly fragmented competitive environment. In terms of revenues and operating EBIT, the channels within Mediengruppe RTL Deutschland remained below the previous year due to the crisis in the advertising industry and price pressure. In the year under review, Groupe M6 generated slightly higher revenues and income year on year; in this case, a lower contribution to operating EBIT from the main channel was more than offset by improved performance by the digital channels and the diversification business. At Five, revenues and operating EBIT fell short of the previous year’s figure due to the sharply declining advertising market and negative exchange-rate effects. In 2009 there were impairments on Five and the Alpha Media Group in Greece, which has now been fully consolidated for a full fiscal year. The Greek group of channels restructured its program range and thereby significantly increased its audience market share. At the Fremantle Media production arm, the declining advertising market resulted in a slight fall in demand from TV channels for formats. Revenues remained largely stable, however, and operating EBIT once again reached last year’s record level. In 2009 it was above all the casting shows produced by Fremantle Media that achieved extremely high audience shares in core markets such as the U.S., U.K., Germany and France. The company acquired the U.S. production firm Original Productions in the year under review. Despite the ongoing program of cost-cutting measures, the RTL Group continued in 2009 to invest in the expansion of its digital business segments such as niche channels, online video services or high-definition programs, and in diversification businesses and program production. In 2009 the Group’s wide range of online platforms in Europe generated over one billion video calls; further catch-up TV services were launched, including “Vox Now“ in Germany, “W9 Replay” in France, or “RTL Most” in Hungary. In Hungary the RTL Group expanded its capital share of the leading market channel RTL Klub to 67 percent.

In a difficult economic environment, Random House, the world’s leading trade-book publishing group, generated stable revenues in 2009 and maintained its operating EBIT. Revenues amounted to €1.7 billion (previous year: €1.7 billion, +0.1 percent), while the operating profit reached €137 million (previous year: €137 million). The return on sales remained at 8.0 percent. At the end of the year, Random House, with its more than 120 individual publishing imprints, had a total of 5,432 employees (December 31, 2008: 5,779). In 2009, Random House confronted the widening effects of the global recession by enhancing its author and retailer partnerships and taking advantage of emerging digital publishing opportunities. Thanks to commercially strong publishing programs, cost reductions in all core divisions, and exchange-rate effects, the company maintained its income even year on year.

In most markets, Random House was able to increase its market share of physical and electronic books. The restructuring of the U.S. publishing units, which was initiated in 2008, was successfully implemented in the year under review. In February 2009, Random House’s U.S. division acquired the nonfiction publisher Ten Speed Press and integrated it into the Crown Publishing Group. The year’s biggest success was Dan Brown’s “The Lost Symbol,” published in mid-September which in its hardcover, audio, and e-book editions sold five million copies for Random House North America alone and almost three million copies for the U.K. Group. Stieg Larsson’s Millennium series proved to be very successful and sold more than seven million copies in Germany and the U.S. in hardcover and paperback. Random House Mondadori benefited from the half-million copy hardcover sales of the new Ildefonso Falcones novel in Spain and Latin America. In the U.S., Random House publishing houses placed 238 titles on the “New York Times” bestseller lists, including 28 at #1. Random House Group U.K. reinforced its outstanding presence on the “Sunday Times” bestseller lists, with 34 titles at #1. In German-speaking countries, Verlagsgruppe Random House provided booksellers with several million-copy titles and a dominant share of “Der Spiegel” nonfiction bestsellers. Year on year, Random House publishing companies registered triple-digit percentage increases in e-book sales in the U.S., U.K., Germany and Canada. While e-book downloads currently represent under two percent of the company’s total revenues, it is the company’s fastest-growing business segment, and gaining market share through its digital publishing is a primary goal of Random House’s corporate strategy. Random House authors won a number of prestigious awards in 2009, including three Pulitzer Prizes: Elizabeth Stroud won the award for “Olive Kitteridge” (Fiction), Jon Meacham for “American Lion: Andrew Jackson in the White House” (Biography) and Douglas A. Blackmon for “Slavery By Another Name” (Nonfiction). Other major honors bestowed upon Random House books included two National Book Awards in the U.S., the coveted Canadian Scotiabank Giller Prize, and the “Best Read” at the British Book Awards.

The leading European magazine publisher Gruner + Jahr recorded a year-on-year decline in revenues and operating EBIT in 2009 as a result of a major slump in advertising and extensive structural changes, but was largely able to cushion the impact of the declining markets. Revenues came in at €2.5 billion, some 9.4 percent lower than the previous year (€2.8 billion), while operating EBIT was down 9.8 percent to €203 million (previous year: €225 million). Return on sales amounted to 8.1 percent (previous year: 8.1 percent). Gruner + Jahr had 13,571 employees at year’s end (December 31, 2008: 14,941). On January 6, 2009, Bernd Buchholz took over as CEO of Gruner + Jahr. His main focus was to implement swift and targeted cost control measures as well as restructuring measures designed to take effect in the medium term and to expand new growth segments. In 2009 the performance of the brand business at Gruner + Jahr was largely characterized by the weakened global economy. The advertising markets in the core countries of Germany, France and Austria declined by 15 to 20 percent while the Spanish market recorded even greater losses. The countermeasures that were introduced took effect and were largely able to offset this development. The circulation revenues had a stabilizing effect during the economic crisis. While the sales environment for businesses in Germany, France and Austria was relatively intact, Spain was also adversely affected in this respect. In the period under review the new business segments performed well with the expansion of the client business in advertising and circulation, digital marketing and gaining new corporate publishing customers. The German publishing business was driven by strong brands such as “Stern”, “Brigitte”, “Gala”, “Auto Motor Sport” and “Geo”, even though their advertising revenues also fell.

The ad marketing in the period under review was optimized by a restructuring at G+J Media Sales and the business media editorial offices (“Financial Times Deutschland”, “Börse Online”, “Capital” and “Impulse”) were merged. The editorial offices for the Living titles were also restructured. Gruner + Jahr launched several magazines, such as “Nido”, “Geomini”, “Gala for Men”, “Business Punk” and “Beef!”. The titles “Emotion” and “Healthy Living” were sold or brought into a joint venture respectively. The performance of the Gruner + Jahr International businesses was highly varied: In China, the continued positive development of the publishing subsidiary Boda was reinforced by a successful expansion of the portfolio of titles. In France, Prisma Presse steered a successful path through the crisis in the advertising and circulation market and gained market share; meanwhile, there was a management change at the French subsidiary during the period under review. In Spain, comprehensive restructuring measures were implemented, while Gruner + Jahr pulled out of the Russian market due to a lack of future prospects. The revenues and operating EBIT of key Gruner + Jahr holdings were significantly reduced as a result of the economic crisis. The declining order volumes made it necessary to implement a significant impairment on property, plant and equipment at Prinovis. Meanwhile, the U.S. print shop Brown Printing proved to be comparatively crisis-proof and the Dresdner Druck- und Verlagshaus even managed to improve its operating EBIT year on year. In Germany and in other countries, G+J journalists again won many prizes for their work in 2009.

In 2009 the media and communications service provider Arvato fell slightly short of the high revenue levels achieved in the previous year, primarily due to lower order volumes and customer insolvencies; operating EBIT was also down year on year. Revenues of €4.8 billion were 3.3 percent lower than the previous year (€5.0 billion) and operating EBIT was €345 million, compared to €369 million in the previous year (-6.5 percent). The return on sales was 7.1 percent (previous year: 7.4 percent). Arvato had 60,323 employees at year-end (December 31, 2008: 62,591). In the year under review, Arvato was largely able to offset the loss of revenues caused by the impact of the economic crisis thanks to new orders and extended services. Process and cost optimizations implemented at an early stage also had a positive effect on operating EBIT. Arvato Services performed differently in individual markets and segments: while the service center activities in France were expanded further, the customer care businesses in other core markets reported lower volumes on existing contracts. Arvato Services comprehensively expanded its logistics network in 2009, for example with dynamically growing supply chain management activities in China and India, the takeover of a telecommunications logistics provider in Germany and the establishment of a European distribution center in Gütersloh for customers from the games industry. Despite falling advertising budgets, the customer retention businesses achieved further growth in revenues and operating EBIT, and international financial services also performed well. Arvato Print gained additional market shares in 2009. Whereas the Arvato print units in Germany and the U.S. performed relatively well in a difficult market situation, the businesses in Southern Europe were under pressure. Arvato Print continued to drive forward development to become an integrated service provider for all aspects of print production. For example, the Print Group added the print management business segment to its service portfolio, and with Reader’s Digest Inc., gained its first major international customer in this growth segment. There were impairments on the Prinovis gravure printing group, which Arvato operates in conjunction with Gruner + Jahr and Axel Springer AG, and also on the print business in Italy. The Prinovis businesses in the U.K. performed well, whereas the performance in Germany was marked by the difficult market situation and restructuring measures. The production and service businesses dealing with digital storage media remained stable in 2009.

Despite globally declining CD and DVD production volumes, Arvato Digital Services was able to increase its own market share by consistently expanding its integrated range of solutions. In addition, the international production capacities for the high-resolution Blu-ray format were further expanded. In Germany, Arvato Digital Services expanded its service portfolio by taking over Universal Music Group’s central media archive. The electronic software distribution business segment was strengthened through the takeover of the Canadian technology provider Protexis and the establishment of further Microsoft webshops in Europe and Australia. The Inmediaone direct marketing organization increased its revenues and operating EBIT in 2009, and through its subsidiary Wissenmedia, acquired the rights to the Brockhaus brand, including all content and inventory. The IT service provider Arvato Systems also reported a positive balance sheet, having maintained last year’s good operating EBIT.

The club and bookselling businesses operated by Direct Group recorded lower revenues in fiscal year 2009 against the backdrop of the recession and continued falling membership levels; operating EBIT almost reached the previous year’s level. At €1.2 billion, revenues were 10.7 percent below the previous year (€1.3 billion), operating EBIT was €28 million, which is 3.4 percent below the previous year’s figure of €29 million. The return on sales was 2.2 percent (previous year: 2.1 percent). At the end of the year Direct Group had 10,087 employees (December 31, 2008: 10,339). Direct Group responded to the difficult economic situation and the declining member revenues in its core markets by implementing a comprehensive cost-cutting program. As a result of this, new-member recruitment and marketing for existing customers were consistently tailored to improve efficiency and profitability. At the same time, restructuring measures were implemented in several countries, in particular in order to streamline the structures further and to mesh the club, Internet and retail activities more efficiently. New club models and an extension of direct marketing activities outside the media business are intended to counteract the fact that club members are now more reluctant to enter into purchase commitments. In Germany, Der Club Bertelsmann could only partially offset further losses in member numbers and revenues through revenues derived from ancillary businesses. Direct Group Germany developed a new bookselling concept called “Zeilenreich”, which for the first time is open to all customers, not just members. The three pilot branches proved popular. The number of traditional club stores was reduced in the period under review. At the same time, for reasons of economic efficiency, Der Club Bertelsmann was interlinked more closely in operating terms with the Austrian club business (Donauland). In France the France Loisirs club business proved comparatively crisis-resistant thanks to cost-cutting measures. The bookselling activities under the Chapitre.com brand, which are also part of Direct Group, performed well in the subdued consumer climate. Shareholdings in the online business Chapitre.com were increased from 50 to 100 percent in the year under review, and the online business was merged under this brand name with the bookselling chain, which was already part of the company. A centralization of logistics implemented in 2009, and the introduction of innovative customer and bonus card concepts in clubs and bookselling, is expected to lead to further improvements. On the Iberian Peninsula, which was particularly badly affected by the economic crisis, the Direct Group companies responded by implementing restructuring measures. Direct Group’s bookselling revenues increased in Spain and Portugal. The Eastern European Direct Group businesses reported stable operating performance in 2009, although the key figures are subject to significant exchange rate fluctuations.

Overview of figures (in € millions)

	2009	2008
Consolidated revenues	15,364	16,249
Operating EBIT by division Corporate/consolidation Operating EBIT	1,506 (82) 1,424	1,687 (112) 1,575
Special items	(730)	(676)
EBIT	694	899
Financial result	(424)	(429)
Earnings before taxes from continuing operations	270	470
Income taxes	(235)	(54)
Earnings after taxes from continuing operations	35	416
Earnings after taxes from discontinued operations	-	(146)
Group profit or loss	35	270

Investments

662

1,095

	Balance as of 12/31/2009	Balance as of 12/31/2008
Net financial debt	2,793	3,445
Economic debt	6,024	6,627
Employees (in absolute numbers)	102,983	107,154

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

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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