March 26 – April 2, 2009 Edition

Exchange Rates Impact
Random House Revenues

BERLIN/Authorlink News/03/24/09—Random House, the world’s largest trade book publisher, is feeling the impact of the global economic crisis, as reflected today in parent company Bertelsmann’s financial report for fiscal 2008. RH reported a 6.3 percent drop in revenues to €1.7 billion (previous year: €1.8 billion), primarily due to the effects of negative exchange rate. Return on sales was 8.0 percent (previous year: 9.4 percent). Revenues, when adjusted for the exchange rates and for acquisitions, 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 slightly more employees at the end of 2008–a total of 5,779 people, compared to December 31, 2007, with 5,764 employees, totals that were no doubt reported before the publisher’s most recent restructuring in December 2008 and January 2009. To initiate significant one-time cost cutting measures in 2008, Random House realigned its divisional structure and corporate management. 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. 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 US 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 UK 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 US 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 US 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.

Company-wide, media giant Bertelsmann recorded a solid business performance for FY 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.”

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.

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.”

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.

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.