Mar 28 – April 3, 2011 Edition Bertelsmann Exceeds Profit Forecast

Berlin/Authorlink News/March 29, 2011–Bertelsmann, the international media group which owns Random House publishing in the US, has significantly exceeded its net income forecast, which was last increased to “over €500 million” in mid-2010.

Random House helped drive the historical highs in income by nominating the bestseller lists and experiencing a boom in its e-book sales.

In 2010, Group profit multiplied year-on-year from €35 million to €656 million. For 2011, Bertelsmann expects its net profit to increase further.

The financial statements presented on Tuesday show a clear recovery for Bertelsmann on the revenue front, as well as a surge in operating EBIT. At 11.7 percent, operating ROS has soared to a new high, fueled by well-running operations in an improved economy, and the enduring effects of cost measures.

Hartmut Ostrowski, Chairman & CEO of Bertelsmann AG, declared: “2010, the year of our 175th anniversary, was one of Bertelsmann’s most successful years to date. We quickly overcame the economic crisis and advanced our businesses considerably. Revenues are growing, profits are on a steep rise, and key indicators like ROS and cash flow from operations have soared to new highs. We have made great progress with our strategy of long-term value creation in 2010. Thanks to our excellent business performance, we have managed to pay down our debt to a point where significant new room for financial maneuver is emerging. We will use these funds to strengthen our core businesses, develop our portfolio and expand into new growth segments. For example, we will expand businesses closely related to our existing operations, such as our wide-ranging digital offerings, e-commerce services for B2B customers, and Corporate Publishing. We will continue to advance into growth regions such as China and India, and will build entirely new businesses. The dynamic growth of our music publishing arm BMG shows how expansion can succeed when experience, a clear concept, and an attractive market come together.”

Particularly strong operating performances were seen in 2010 at the European entertainment group RTL Group and the magazine subsidiary Gruner + Jahr. Both profited considerably from the upswing in the advertising economy and expanded their businesses in all core areas, including their digital offerings. RTL Group significantly increased its revenues during the reporting period, driving operating EBIT to a historical high. Gruner + Jahr and the trade book publishing group Random House, which saw a boom in e-books and dominated the bestseller lists with its portfolio of titles, increased both their revenue and operating EBIT year on year.

Gruner + Jahr’s profits were in fact considerably above pre-crisis levels. The media and communications services provider Arvato saw a recovery in the printing businesses, as well as growth with its digital services. Arvato’s revenues for the first time exceeded €5 billion, while its operating result remained stable. Direct Group recorded a drop in revenues as expected after withdrawing from several countries; operating EBIT declined as well. The German-language club businesses ended the year with a positive result.

Bertelsmann gained market shares in various industries and regions in 2010, e.g. the German viewer market, the TV ad sales markets in Germany, France and the Netherlands, print and e-books in the U.S., U.K., and Germany, and the printing business. Group revenues from continued operations increased by 4.5 percent to €15.8 billion in 2010 (previous year like-for-like: €15.1 billion). Earnings before interest, tax and special items (operating EBIT) grew by nearly a third to €1,852 million (previous year: €1,438 million). This boosted ROS to 11.7 percent (previous year: 9.5 percent). Special items for the period under review declined to €-356 million (previous year: €-545 million), leaving Group profit of €656 million, up by €621 million.

Bertelsmann CEO Ostrowski said: “The excellent figures are a team achievement, and in our Group’s best tradition of partnership, our employees will participate in this success. Bertelsmann and its companies will pay out a total of €118 million worldwide in employee profit participation for the past fiscal year, more than ever before. This is a record that I am especially happy about.”

As a result of Bertelsmann’s strict cash orientation in business transactions, operating free cash flow during the period under review increased to a record €2.1 billion (previous year: €1.8 billion). This helped reduce net financial debt to €1.9 billion (previous year: €2.8 billion).

The more broadly defined economic debt amounted to €4.9 billion, €1.1 billion lower than the previous year.

Bertelsmann CFO Thomas Rabe said: “Thanks to the high cash flow from operations, we’ve managed to reduce our liabilities to such an extent that at year-end 2010, our Leverage Factor was at 2.3, well below our new, self-imposed ceiling of 2.5. The €1.9 billion in net financial debt stands against operating EBITDA of €2.4 billion. In other words: the issue of debt has been dealt with for good. Financially speaking, Bertelsmann is ready to invest again.”At the end of May 2011, under the terms and conditions of the profit participation certificates, the payout on 2001 certificates will again be 15 percent of notional value. Payout on the “old’ profit participation certificate from 1992 will be 7.23 percent (previous year: 3.97 percent). Commenting on the outlook for the current fiscal year, Rabe said: “If the economic expectations for our core geographic markets are met, Bertelsmann expects moderate revenue growth in 2011, in line with the overall development of the economy. We intend to keep the operating result stable at its current high level, and Group profit will increase given lower special items.”