Aug 29 – Sept 4, 2011 Edition Random House Helps Drive Bertelsmann Profits in First Half of 2011

Gütersloh/AUTHORLINK NEWS/August 31, 2011—International media giant Bertelsmann reported strong financial results for the first half of 2011 over the previous year, increasing its profits by nearly 10%. The company owns Random House in the US, whose book publishing business accounted for a substantial share of company-wide earnings.

Random House, the world’s largest trade book publisher significantly increased its operating EBIT in the first half, while recording a slight dip in revenues due to unfavorable exchange-rate effects. Revenues reached €787 million (H1 2010: €791 million) and operating EBIT €69 million (H1 2010: €40 million). The Random House operating EBIT benefited from a strong U.S. performance despite insolvencies and ongoing consolidations in book retail. Overall gains were driven by an outstanding portfolio of titles worldwide, with several million-copy print bestsellers, and the continued rapid growth in e-book sales across all territories. In the U.S., digital sales accounted for more than 20 percent of all revenues.

At the reporting date, Random House imprints had more than 27,000 e-books available worldwide. Random House placed 145 titles on the “New York Times” U.S. bestseller lists in the first six months of the year, including the #1 bestselling “Unbroken” by Laura Hillenbrand, and sold nearly four million copies of U.S. author George R.R. Martin’s epic fantasy series “A Song of Ice and Fire.” Random House Group UK increased its year-on-year sales and profits and published more than a quarter of all “Sunday Times” bestsellers. In Germany, Verlagsgruppe Random House improved its revenues and market share in a difficult overall market, and Random House Mondadori also outperformed the market in Spain. During the period under review, Random House, Inc. author Jennifer Egan won a Fiction Pulitzer Prize for “A Visit from the Goon Squad,” and Philip Roth won the Man Booker International Prize.

Bertelsmann’s overall revenue growth was fueled by the ad-sales-driven divisions – RTL Group and Gruner + Jahr – and the outsourcing service provider Arvato. Positive earnings came mostly from the television business and Random House’s book publishing business. During the reporting period, RTL Group benefited from good business in its core markets of Germany, France and the Netherlands, while at Random House the U.S. business and the digital operations performed especially well. The magazine publisher Gruner + Jahr generated higher advertising and circulation revenues and optimized its publishing and editorial structures. Arvato increased its revenues noticeably, but higher prices for energy and paper as well as start-up costs for new projects led to a decline in operating EBIT.

Group revenues from continuing operations increased by 1.9 percent to €7.2 billion after €7.0 billion in the comparable period last year. Excluding portfolio and currency effects, organic growth came to 2.4 percent; all divisions contributed to this. Operating EBIT was €737 million, down only slightly from last year’s record figure of €754 million. Return on sales amounted to 10.3 percent (H1 2010: 10.7 percent), putting it in the double digits once again. The Group profit rose by €23 million or 9.3 percent, to €269 million, due primarily to Bertelsmann’s content businesses. Lower interest charges and debt reduction contributed to the positive bottom line.

The Bertelsmann Value Added (BVA), which measures the profit realized above and beyond the cost of capital, reached €88 million in the first half of 2011 (H1 2010: €82 million).

“We are very satisfied with developments in the first half,” says Bertelsmann CEO Hartmut Ostrowski. “We improved our revenues and Group profit as well as our central performance indicator, the BVA, a benchmark of value creation. For only the second time ever, return on sales reached double-digit figures in a half-year reporting period. This gives us the necessary impetus to resolutely move forward with our growth strategy. We have already made good progress in the past few months.”

Cash flow from operating activities continued high in the first half of the year. Cash and cash equivalents exceeded €1.6 billion at 30 June 2011. Net financial debt was €2.0 billion at mid-year after over €1.9 billion at 31 December 2010 and was thus marginally higher due to seasonal effects (dividend payments in the first half of the year). Net financial debt was reduced by €764 million year-on-year. Bertelsmann’s economic debt was reduced to €4.86 billion at 30 June 2011 (31 December 2010: €4.91 billion), down by €1.16 billion year on year. At 2.3, the leverage factor was below the internal limit of 2.5.

“Bertelsmann is in a very sound financial position,” says Bertelsmann CFO Thomas Rabe. “We have a good business profile and a comfortable cash position. The leading rating agencies recently acknowledged this by each upgrading our long-term credit ratings one notch. We are cautiously optimistic for business in the second half of the year, although there has been a marked increase in economic uncertainties. Against this backdrop, we continue to expect moderate growth in Group revenues and a return on sales of over 10 percent for the 2011 fiscal year. Operating EBIT will likely be slightly down year on year, partly due to costs for new projects and higher energy costs, while Group net income will be above last year’s value thanks to lower one-time effects.”

As of June 30, 2011, Bertelsmann employed 100,012 employees worldwide (December 31, 2010: 97,528).