August 28 – September 4, 2008 Edition

Random House
Reports Decline
In First Half

NEW YORK, NY/8/28/2008–Random House, the world’s largest trade book publishing group, registered a decline in first-half revenues and operating results, mainly due to unfavorable currency exchange rates, a slowdown in consumer spending in some key markets, as well as such ongoing economic pressures as rising shipping and marketing costs. The results were reported as part of parent company Bertelsmann’s financial results for the first half of 2008.

Sales for the Random House its publishing group fell 8% in the first half of 2008, to 766 million euros ($1.13 billion), and EBIT (earnings before interest and taxes fell 29.5%, to 31 million euros ($46 million).

New CEO Markus Dohle, who came on board June 1, said in a letter to all employees worlwide that  "We have much catching up to do from September through December to reach our ambitious targets." Dohle said RH was "hit hard" by the weak U.S. dollar and British pound as well as a declining worldwide economy. The company also faces higher operations and shipping costs in North America. 

Dohle said that while sales were off to an encouraging start in the second half of 2008, with revenue up in July in the U.S. and Germany, employees would have to work harder for every sale–"even for our biggest books, in this retail environment, there are no guaranteed successes."

Random House, Inc. placed 161 titles on the N.Y. Times bestseller lists. The London-based Random House Group outperformed its marketplace, accounting for over 30 percent of all bestsellers listed in the Sunday Times. Since January, Random House Mondadori has sold more than one million hardcover copies of Ken Follett’s "Un Mundo Sin Fin" in Spain and Latin America. Random House grew its portfolio with the acquisition of the distinctive publishers The Monacelli Press and Watson-Guptill Publications in the U.S. and Hugendubel Verlage in Germany. In the U.S., Random House sold more e-book downloads in the first half of 2008 than in all of 2007, while Random House U.K. enhanced its digital business with new services. The company also saw a changeover at the top on June 1, 2008 with the appointment of Markus Dohle as Chairman and CEO.

The parent international media company Bertelsmann significantly increased consolidated net income in the first six months of 2008, reaching €372 million compared with €51 million in the he corresponding period of the previous year. Since the beginning of the year, the Bertelsmann Executive Board has made wide-reaching portfolio decisions, improving the company’s growth profile.

The increased net income was primarily due to improved EBIT (earnings before interest and tax). EBIT in continuing operations climbed to €637 million compared to €472 million in the same period of the previous year, which was influenced by significant special items. Operating EBIT amounted to €681 million compared to €739 million in the previous year. The continued weakness of the dollar and the economic situation impacted revenues. Revenues from continuing operations fell by 1.2 percent to €7.6 billion (previous year: €7.7 billion). ). Adjusted for portfolio and exchange rate effects, consolidated revenues grew by 1.4 percent.

 RTL Group, the leading European entertainment network, reported revenues in the first half were almost even year on year, with the operating result declining slightly; revenues remained at nearly the same level. Negative exchange rate effects and a decline in consumer spending have led to decreases in revenues and Operating EBIT at Random House. Gruner + Jahr fell slightly in revenues; however, Operating EBIT was marginally above the previous year’s level. Arvato raised both revenues and Operating EBIT. Direct Group’s continuing operations reported revenues on almost the same level as the previous year and operating EBIT below the previous year.

"In view of the difficult economic conditions, we are satisfied with our business performance for the first six months of the year. Strategically, we are now concentrating on growth initiatives, following the portfolio measures, in order to sustainably increase the value of our enterprise," explained Hartmut Ostrowski, Chairman and CEO of Bertelsmann AG.

Mr. Ostrowski emphasized that expanding and strengthening existing business, as well as setting up new businesses will now become the company’s main focus, in such areas as education, or regionally, in the growth markets of Eastern Europe and Asia. With the intensive use of versatile digital distribution channels and through innovative media offerings for the Internet or mobile phones, Bertelsmann also benefits from the opportunities provided by digitization. "In these areas, all of our businesses are displaying a high level of creativity and entrepreneurial drive," Ostrowski said.

Thomas Rabe, Bertelsmann’s Chief Financial Officer, added: "For 2008, we are aiming for higher revenues than in the comparable period of the previous year for continuing activities. In view of the subdued economic outlook, operating EBIT is estimated to come in slightly lower year-on-year, while net income is expected to rise significantly given the elimination of certain special items and lower tax expense versus the previous year."

As of June 30, 2008, the number of Group employees in continuing activities rose to 94,644 worldwide (December 31, 2007: 93,660). 

Bertelsmann is an international media company encompassing television (RTL Group), book publishing (Random House), magazine publishing (Gruner + Jahr), music (BMG), 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.