Business News

Bertelsmann significantly exceeds profit forecast, expects further increase for 2011

Wednesday 30. March 2011 - Group revenues increase by 4.5 percent to €15.8 billion in 2010

Operating EBIT rises significantly to €1,852 million
Highest-ever Return on Sales (ROS) at 11.7 percent
Group profit increases to €656 million
At €118 million, employee profit participation is highest ever
Bertelsmann, the international media group, has significantly exceeded its net income forecast, which was last increased to “over €500 million” in mid-2010. 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.”
Further key figures:
BVA
Bertelsmann Value Added (BVA) – the Group’s central performance indicator – rose from €50 million to €371 million in fiscal 2010. BVA measures the profit realized above and beyond the appropriate return on invested capital, and is calculated as the difference of net operating profit after tax (NOPAT) and the cost of capital.
Special items
Special items came to €-356 million in fiscal year 2010, from €-545 million in the previous year. They included impairments on goodwill, intangible assets with indefinite useful life and financial assets totaling €-216 million (previous year: €-179 million). Impairments stemmed from factors such as the reevaluation of Direct Group France’s situation in conjunction with a possible sale, and the TV business in Greece.
Cash Flow
In the period under review, Bertelsmann generated net cash from operating activities of €2,052 million (previous year: €1,777 million). The Group’s long-term operating free cash flow adjusted for non-recurring items was €2,075 million (previous year: €1,771 million), and the cash conversion rate remained high at 112 percent (previous year: 125 percent).
Total assets
Total assets came to €18.8 billion as of December 31, 2010 (December 31, 2009: €19.4 billion). The decline in total assets is attributable primarily to the repayment of financial debt and the buyback of profit participation certificates from existing liquidity. Equity increased from €6.0 billion to €6.5 billion thanks to improved earnings. This constitutes an equity ratio of 34.5 percent (previous year: 30.9 percent).
Investments
At €753 million, total investments during fiscal 2010 were up from the previous year (€662 million); most of this went to RTL Group and Arvato.
Employees
At the end of the fiscal year, the Group had 104,419 employees worldwide (previous year: 102,704). The increase of 1,715 employees is attributable to organic growth, as well as acquisitions.
Divisions:
In 2010 Europe’s leading entertainment group RTL Group benefitted from strong growth in the TV advertising markets in Western Europe, successful programs and the comprehensive cost-cutting measures introduced in the previous year. The revenues for continuing operations increased by 8.4 percent to €5.6 billion (previous year: €5.2 billion), while operating EBIT grew by 36.7 percent to €1.1 billion (previous year: €806 million). The return on sales rose to 19.7 percent, compared to 15.6 percent in the previous year. In the period under review RTL Group sold the UK TV channel Five to the media group Northern & Shell; last year’s figures were adapted accordingly. At the end of the year RTL Group had a total of 12,339 employees (December 31, 2009: 12,241). The positive operating EBIT development was primarily attributable to strong business performance at Mediengruppe RTL Deutschland, at Groupe M6 in France and at RTL Nederland. RTL Group maintained its leading positions in audience markets in key countries, even though almost all of the World Cup matches with the highest ratings were broadcast by competitors. Mediengruppe RTL Deutschland significantly improved its operating EBIT and its market position. The German family of channels achieved a record 35 percent audience share in the main target group; meanwhile the flagship RTL Television took over the leading position in the overall audience market for the first time since 2003, with a market share of 13.6 percent. Formats such as “Deutschland sucht den Superstar” and “Das Supertalent” posted record viewing figures. In France the Group’s main channel M6, the digital channels and the diversification businesses such as merchandising, e-commerce and mobile communication cooperations helped to boost the overall performance. At the same time, M6 and all other full-program providers lost market share due to the growth of digital terrestrial television in France. Overall the Groupe M6 channels slightly increased their audience market share to 14.3 percent. The digital free TV channel W9 continued its strong growth. RTL Nederland also gained audience share, achieving record viewing figures in 2010. Fremantle Media, the production arm of RTL Group, increased its revenues thanks to many successful international formats, but its operating EBIT declined due to high margin pressure. The casting shows produced by Fremantle Media achieved extremely high audience shares in all core markets. In the period under review Fremantle Media acquired shares in several production companies, including the U.S. production company Radical Media and the Canadian games developer Ludia. In 2010 RTL Group continued to invest in the expansion of its digital business segments such as special interest channels, online video services, high definition programs and diversification businesses. The Group’s wide range of online and on-demand platforms in Europe generated over 1.4 billion video calls. RTL Group subsidiaries launched over 60 mobile applications, achieving high download figures. Digital pay channels in Germany, France and the Netherlands also operated profitably.
The world’s leading trade book publishing group Random House increased both its revenues and operating EBIT in 2010 thanks to a strong portfolio of titles, a rapidly growing digital business, and positive exchange rate effects. Continued cost-saving measures also contributed to its improved performance. At €1.8 billion, revenues were up 6.1 percent from the previous year (€1.7 billion), while operating EBIT rose by 26.3 percent to €173 million (previous year: €137 million). Return on sales reached 9.5 percent after 8.0 percent last year. At the end of the year, Random House had 5,264 employees (December 31, 2009: 5,432). In 2010, Random House’s imprints published some of the world’s most widely read print and e-books, with print continuing as the most dominant reading format. Amidst the increasing use of e-readers and tablet PCs, Random House expanded its e-books programs to more than 25,000 titles cumulatively, with worldwide digital sales up 250% from the previous year. Some U.S. fiction titles now have as much as half of their first-weeks sales in the e-book format. In the largest book market, the United States, Random House placed 230 titles on the “New York Times” bestseller lists, including 25 at #1. “Decision Points” by former U.S. President George W. Bush sold more than two million copies in print and digital editions in the first eight weeks. The Millennium trilogy by Stieg Larsson also continued its success, selling more than 13 million copies in hardcover, paperback, audio, and e-editions last year in the United States alone, with Verlagsgruppe Random House in Germany selling a further two million Larsson paperbacks. Six of the ten top-selling 2010 German-language titles were published by Verlagsgruppe Random House, including “Deutschland schafft sich ab” by Thilo Sarrazin, the only book to sell more than one million copies in Germany in 2010. During the year under review, Verlagsgruppe Random House acquired the prestigious audio publishing house Der Hörverlag (DHV). In the UK almost a third of all the titles on the “Sunday Times” bestseller lists were published by Random House Group UK, which also had more #1 titles than any other publishing group. Former British Prime Minister Tony Blair’s memoirs (“A Journey”) achieved record sales upon publication. In the Spanish-speaking countries, Random House Mondadori had two of the year’s top five bestsellers: “La Caída de Los Gigantes” by Ken Follett and “Dime quién soy” by Julia Navarro. During the year under review, Random House authors received numerous prestigious awards, including two Pulitzer Prizes: T.J. Stiles won the award for “The First Tycoon” (Biography), and David E. Hoffman won it for “The Dead Hand” (General Nonfiction).
In 2010 Europe’s leading magazine publisher Gruner + Jahr benefitted from increasing advertising revenues in key markets, restructuring and from cost-cutting measures. Revenues increased slightly by 1.6 percent to €2.5 billion (previous year: €2.5 billion), while operating EBIT increased significantly by 41.4 percent to €287 million (previous year: €203 million). Operating EBIT was therefore considerably above the pre-crisis level. The return on sales in the year under review came in at 11.2 percent, compared to 8.1 percent in the previous year. At the end of the year Gruner + Jahr had a total of 13,337 employees (December 31, 2009: 13,571). G+J Germany recorded a very positive business performance thanks to increased advertising business, sustainable structural changes and ongoing cost control. Despite slightly declining circulation revenues, operating EBIT improved year on year and was also above the pre-crisis level. G+J Germany made significant gains in advertising, with gross advertising volume growing ahead of the market. This market share increase is attributable to the good performance of its strong brands – notably “Stern”, “Gala” and the G+J business media brands – as well as the successful reorganization of the marketing company G+J Media Sales. In the period under review Gruner + Jahr acquired a 51 percent stake in the company that publishes the football magazine “11 Freunde”. The expansion of the core business was driven by the acquisition of many new customers, particularly in corporate publishing. The digital businesses were strengthened by the launch of the online kiosk “Pubbles”, which is held in equal parts by DPV and Direct Group Bertelsmann. The revenue growth in the German digital business is above the market average and can be attributed primarily to the online sites for print brands and Chefkoch.de, xx-well.com as well as the expansion of the EMS marketing business (including Ligatus). Operating EBIT at Prisma Presse in France improved significantly year on year. In December the company began to transfer all employees to the new publishing location in Gennevilliers. In Spain the advertising and circulation markets continued to decline due to the ongoing difficult economic environment. Nonetheless, Gruner + Jahr managed to generate significant profits here, thanks to the restructuring steps implemented in 2009 and continued cost cutting measures. In China there was above-average growth in advertising revenues. Magazines published by the Ray-Li group continued to be very profitable. In Austria the Verlagsgruppe News recorded a strong operating EBIT and stable revenues. The key G+J holdings also performed well: the highly profitable Dresdner Druck- und Verlagshaus slightly increased its revenues. The markets for high-circulation print products in North America and Europe were dogged by high overcapacities and price pressure; meanwhile, capacity closures and the brighter economic situation resulted in a trend of improvement over the course of the year. For example, Brown Printing and the Prinovis gravure printing group, the latter operated in conjunction with Arvato and Axel Springer AG increased its market share and operating EBIT by gaining new customers. In addition, with effect from the end of the year, the G+J headquarters at “Am Baumwall” in Hamburg were acquired after terminating a financing leasing contract for this building. In Germany and in other countries, G+J journalists again won numerous prizes for their work in 2010.

In 2010 the media and communications service provider Arvato increased its revenues by expanding existing businesses, establishing new services and acquiring new customers; operating EBIT remained stable. Revenues rose by 5.3 percent to €5.1 billion (previous year: €4.8 billion) and were therefore above the five billion euro mark for the first time; operating EBIT of €350 million was up 1.4 percent from the previous year’s figure of €345 million. The positive business performance on Group level also benefitted Arvato employees, who will receive over €40 million in profit sharing. This had a corresponding impact on Arvato’s return on sales, which came in at 6.9 percent (previous year: 7.1 percent). At the end of the year Arvato had 63,985 employees (December 31, 2009: 60,323). In 2010, Arvato continued the transformation to a provider of integrated market solutions in all its divisions. The print services division Arvato Print increased revenues in the year under review and gained market shares. While the Arvato print units in Germany performed very well and the businesses in the U.S. were stable, the situation on the Southern European print markets remained tight. In 2010 Arvato Print continued to focus on becoming an integrated service provider for all aspects of print production. For example, the Print group added brochure printing to its service portfolio and produced almost one billion advertising brochures for its new customers Netto and Real. The Prinovis gravure printing group, which Arvato operates in conjunction with Gruner + Jahr and Axel Springer AG, performed well in an ongoing difficult market situation. The Arvato service businesses performed very differently in individual countries, markets and segments: the main growth drivers were the French call center operations and the global financial services business. The services operations in the UK, Asia and Eastern Europe also developed well. Meanwhile, the services companies on the Iberian Peninsula and the customer care business in Germany remained under pressure due to difficult market conditions. Arvato Services extended its international supply chain management operations through the continued expansion of distribution services in China and India, the expansion of the pharmaceutical business across Europe and the acquisition of new customers in the promising online trading business. The customer loyalty businesses remained stable overall. In 2010 Arvato took over the remaining shares in the Arvato Infoscore group. The production and service businesses operated by Arvato Digital Services grew slightly in 2010 despite globally declining CD and DVD production volumes. It was able to win new customers, significantly extend the business relationship with its existing customers and increase its own market share by consistently expanding its integrated range of solutions. In addition, Arvato invested in the global production capacities for the high resolution Blu-ray format. In Europe Arvato Digital Services successfully entered the merchandising business segment, and the company has also established itself as an innovative provider in the electronic software distribution segment. The storage media businesses also recorded strong growth in Asia, South America and, in particular, in Brazil. The direct marketing organization Inmediaone increased its revenues and operating EBIT. Under the Brockhaus umbrella brand, it established the new Internet-based learning products Scolaris and Prescolaris on the market. The IT service provider Arvato Systems also reported a positive balance sheet. The company achieved profitable growth in 2010.
The club and bookselling businesses operated by Direct Group recorded declining revenues and operating EBIT in 2010; this is attributable to the withdrawal from a number of countries and falling member and bookselling revenues in key markets. Revenues declined by 14.2 percent to €1.1 billion (previous year: €1.2 billion), while operating EBIT fell by 14.3 percent to €24 million compared to €28 million for the previous year. The return on sales came in at 2.2 percent (previous year: 2.2 percent). At the end of the year Direct Group had 8,485 employees (December 31, 2009: 10,087); the decline primarily reflects the portfolio changes that were implemented. In Spain, Círculo de Lectores was incorporated in a joint venture with the media group Planeta. Under the agreement, more Círculo retail spaces will be established in Planeta bookstores in an effort to increase sales. Planeta and Círculo also initiated a close cooperation in direct marketing, in order to target new customer groups and broaden the product range. In Germany, Direct Group tested various open bookselling concepts intended to counteract the fact that customers are increasingly reluctant to join clubs. Customers liked the new concept and revenues rose accordingly. For direct marketing operations such as travel and lottery the main focus was on optimizing the business and launching new projects. The number of traditional club branches was reduced during the period under review. The digital businesses were expanded with the launch of the online kiosk “Pubbles” for digital newspaper and magazine content as well as e-books, whose shares are equally held by Direct Group and the G+J subsidiary DPV. In France, revenues declined at the club businesses around the flagship France Loisirs and the bookselling businesses under the Chapitre.com brand. In the online business Chapitre.com did increase its revenues significantly, however. Direct Group France launched the first e-reader on the French market with Oyo. In the period under review Direct Group started to look at the strategic options for its French businesses. The Eastern European Direct Group operations performed well. The Group consolidated its market leadership position in the Ukrainian club, publishing and distribution business, maintained leading positions in the Czech Republic and Slovakia, while preparing for the sale of its Polish operations. In the period under review Direct Group sold its club and bookselling operations in Portugal, Italy, Australia and New Zealand.
The Corporate division, which includes the Bertelsmann Group Corporate Center and Corporate Investments, reported an operating EBIT of €-88 million for 2010, compared to €-84 million for the previous year. The change can be attributed among other things to the scheduled start-up costs for expanding the music rights company BMG, which is operated as joint venture between Bertelsmann and KKR. Provisions were also established for employee profit participation in 2010, reflecting the strong financial results for the year. This was partially offset by efficiency measures, in particular the reorganization of the Corporate Center. For example, new service products for external customers were created through the divestment of individual service functions and a merger with Arvato units. A key work aspect in 2010 was the 175th anniversary of Bertelsmann, including a party for around 12,000 employees at the Group’s headquarters in Gütersloh and a big gala event in Berlin. BMG significantly expanded its business operations during the year under review. Major investments included the acquisition of the music publishers/catalogs Cherry Lane, Evergreen and Adage IV in the U.S. and Stage Three Music in the UK. At the end of the year BMG also initiated the acquisition of the long-established UK music publisher Chrysalis. In Europe and the U.S. new contracts were signed with a number of well-known artists in 2010. BMG now has offices in the eight most important music markets worldwide and manages the rights to over 300,000 compositions and recordings. The Bertelsmann Digital Media Investments (BDMI) and Bertelsmann Asia Investments (BAI) funds, which are part of Corporate Investments, had a total of 25 holdings at the closing date. During the course of the fiscal year, BDMI acquired three new holdings with the start-up Deal United, the online language school “Learnship” and the textbook provider “Flat World Knowledge.” The fund successfully sold the “BuyVIP” business. The BAI holding “BitAuto,” Chinese market leader for online content and online marketing in the automobile sector, was successfully floated on the New York Stock Exchange in November. The number of employees in the Corporate division was 1,009 at year-end (December 31, 2009: 1,050).