Press Release: Bertelsmann Invests Billions; Achieves Leap in Profits
Berlin, March 26, 2014 - The international media company Bertelsmann invested heavily in expanding its businesses in 2013, as the company increased its revenues, operating result and Group profit. Investments in implementing the Group's strategy amounted to €2 billion, including financial debt assumed, up from €655 million in the previous year, and its largest sum since 2005. Group profit increased by 42 percent to €870 million. This is the highest Group profit since 2006, and is well above the latest expectations.
With transactions such as the merger of Penguin and Random House to create the world's largest trade book publisher, the acquisition of full ownership in BMG and the acquisition of Gothia, the Arvato division's biggest purchase to date, Bertelsmann made significant strides in implementing its strategy. These also include the realignment of key business units and stepped-up activity in growth regions. Further steps to advance all the strategic priorities are planned this year. The financial basis for this advancement was laid with last year's placement of RTL Group shares. Bertelsmann has announced as a priority significant expansion of its education business over the next few months. The Group has also initiated the market entry of its BMG music rights subsidiary in China. Over the next few years, Bertelsmann will invest several billion euros in expanding existing and new businesses, and aims to make further acquisitions.
Bertelsmann Chairman and CEO Thomas Rabe said: "Bertelsmann delivered a gratifying business performance in 2013, and is acting from a position of strength. We have improved our growth profile through strategic decisions and have pushed forward the transformation to digital across all divisions. The diversity of our creative offerings and services is second to none. Also, our figures demonstrate our company's economic capacity and solid financing. On this basis, in 2014 we will continue to work on making Bertelsmann a faster-growing, more digital, and more international company." More specifically, he said, Bertelsmann will invest in growth areas such as education and music rights, as well as in the creative core of the company: "We want to gradually expand education into our third revenue mainstay, alongside media content and services. In music rights, the focus will be on further internationalization and strengthening the master rights business."
Rabe emphasized that in 2013 and in the first few months of the current year, Bertelsmann has made significant progress on all four strategic priorities - strengthening the core, digital transformation, developing growth platforms and expanding in growth regions.
For example, the core businesses were particularly strengthened through the creation of the world's leading trade book publisher, Penguin Random House, on July 1, 2013. RTL Group further expanded its families of channels. It also acquired TV production companies and, in Germany, much-sought broadcasting rights to the national soccer team's qualifying matches for Euro 2016 and the 2018 World Cup. Bertelsmann's Gruner + Jahr and Arvato divisions realigned themselves: Gruner + Jahr now addresses its readers and users along defined Communities of Interest, and Arvato has reorganized itself into Solution Groups to strengthen coordination between countries and its key account management for major customers.
Bertelsmann also increased its footprint and reach in the digital world. In 2013, RTL Group reported a total of 16.8 billion online video views. Through its participation in multi-channel networks it became the third largest YouTube provider (excluding music videos). Penguin Random House grew its e-book offerings to more than 77,000 titles. Gruner + Jahr broadened its portfolio of e-magazines, high-reach mobile services and apps. Arvato achieved further growth as a service provider for leading IT, high-tech and e-commerce companies. Bertelsmann's various companies and editorial teams now operate approximately 3,500 social media channels with a combined total of 300 million followers on Twitter, Facebook, Google+ and YouTube.
An important milestone in the expansion of growth platforms was achieved in 2013 with the complete takeover of BMG. Five years after its exit from the traditional recorded-music business, Bertelsmann is again one of the leading players in the music industry. During the reporting period, BMG expanded with several catalog acquisitions and prominent artist signings, including Mick Jagger and Keith Richards of the Rolling Stones, Robbie Williams and the Backstreet Boys, followed by the acquisition of Talpa Music in the Netherlands at the beginning of 2014. In the education sector, an attractive portfolio of holdings has been built in the US and Europe via the "University Ventures Fund I" in which Bertelsmann is an anchor investor. Arvato enhanced its strengths in the fast-growing financial services sector by acquiring the Gothia Financial Group, which serves customers in 21 countries. Furthermore, with the acquisition of Netrada at the beginning of this year, Arvato became a leading European provider of integrated e-commerce services.
Bertelsmann also accelerated its business-building activities in growth regions. Together with CBS, RTL Group expanded into Southeast Asia for the first time. In the book publishing business Bertelsmann improved its position in China, India and South America through the merger of Penguin and Random House. In China, Arvato achieved further profitable growth with its service offerings. The Bertelsmann Asia Investments fund enlarged its portfolio and recorded a very positive performance. In Brazil, a step-by-step expansion of the business was initiated by investing in funds and innovative startups.
Bertelsmann CEO Thomas Rabe: "We are on track to increase our revenue volume to around 20 billion euros by 2017 and gradually increasing our Group profit to over one billion euros. The various growth initiatives in our divisions and at corporate level, possible acquisitions, and the full consolidation of Penguin Random House, BMG and Gothia in the current year will contribute to this. At the same time, we are downscaling low-growth businesses such as replication, printing and direct-to-customer businesses."
In 2013, positive contributions came primarily from the aforementioned portfolio expansions as well as from the German television business. During the reporting period, revenues increased by 1.8 percent to €16.4 billion (previous year €16.1 billion). Growth from the portfolio expansion was offset by normalized revenues in the book business, generally weak advertising markets in Europe, and the scaling back of structurally declining business. Organically, revenues decreased by 2.8 percent. Exchange rate effects amounted to -1.2 percent; portfolio and other effects added 5.8 percent.
The operating result increased in 2013 despite startup losses in building new businesses: Bertelsmann generated operating EBIT of €1.75 billion after €1.73 billion in the previous year. Return on sales was again in the double digit range at 10.7 percent (previous year: 10.8 percent). In particular, the result reflects a strong business performance by Mediengruppe RTL Deutschland, thriving IT and SCM services at Arvato, and the strategic portfolio measures taken during the reporting period.
Against this backdrop, operating EBITDA from continuing operations rose to
€2.3 billion (previous year: €2.2 billion). The full consolidation of BMG contributed to this increase. The EBITDA margin was 14.1 percent (previous year: 13.8 percent).
Thanks to lower expenditure on special items, Group profit improved by 42 percent during the reporting period to €870 million (previous year: €612 million) - the highest it has been since 2006.
The business expansion in 2013 led to the highest investments in eight years. Including financial debt assumed, Bertelsmann invested €2.0 billion (previous year: €655 million), mainly in the acquisitions of BMG and Gothia as well as for the purchase of various music catalogs and film rights. Thanks to the proceeds from the placement of RTL Group shares and a high level of operating cash flow, net financial debt was reduced to €636 million at year-end (previous year: €1,218 million). The Group's broader economic debt was down to €4,178 million at December 31, 2013, after €4,773 million in the previous year. Adjusted operating free cash flow amounted to €1.8 billion (previous year: €1.9 billion).
Bertelsmann CFO Judith Hartmann added: "In financial year 2013 Bertelsmann demonstrated its high profitability, and the Group is in excellent financial shape. All the signs point to expansion and we have the resources available for it. The successful placement of RTL Group shares alone brought us proceeds of €1.5 billion. For 2014, Bertelsmann expects strong revenue growth, continued high profitability, and a positive development of Group profit."
Bertelsmann employees are participating in the successes achieved: For the last financial year, they will receive profit participation amounting to €101 million (previous year: €92 million), the third-highest total in the company's history to date.
In accordance with the terms governing the Bertelsmann 2001 profit participation certificate (ISIN DE0005229942), 15 percent on the nominal value will again be paid out on May 12, 2014. The pay-out for the 1992 profit participation certificate (ISIN DE0005229900) is 7.49 percent (previous year: 7.39 percent).
Other key financials:
Special items amounted to € -46 million compared to € -405 million in the previous year. The majority of the restructuring expenses relate to structurally declining businesses, notably the imminent closure of the Prinovis location in Itzehoe. They also include costs for the implementation of the new organizational structure of Gruner + Jahr and Arvato as well as integration costs in connection with the merger of Penguin and Random House. A re-measurement of the fair value of BMG after the takeover of the remaining BMG shares as well as a write-up on the carrying amount of the Atresmedia investment, had a positive impact.