Annual Press Conference 2014

Group Development 2013 and Strategy, Bertelsmann Management SE Executive Board Annual Press Conference, March 26, 2014 in Berlin

Financial year 2013 – Strong business performance, progress along strategic priorities Group development 2013

1

Revenues increased to €16.4 billion

2

Double-digit return on sales, group profit increased by more than 40%

3

Strategic flexibility due to stronger financial position

2

Strengthening the growth profile

3

Stepwise development of a third pillar in addition to media and services: Education

Strategy

1 Page 2

Major successes in strategy implementation

March 26, 2014 · Bertelsmann · Annual Press Conference

Group development 2013

Thomas Rabe, Chairman and CEO Judith Hartmann, Chief Financial Officer

Group key figures 2013 – High profitability, group profit increased by more than 40 percent Revenues (in € billions)

Operating EBITDA (in € millions)

+1.8%

16.1

EBITDA margin 13.8%

14.1%

Operating EBIT 1,732

1,754

Group profit (in € millions)

16.4 +4.7%

2,210

2,313

+42%

870 612

2012 Page 4

2013


2012

2013

2012

2013

RTL Group – High profitability, expansion of families of channels and non-linear TV Significant increase in profitability • High profitability despite mostly declining advertising markets in Europe • Further expansion of families of channels

Revenues

Operating EBITDA

(in € millions)

(in € millions)

-1.9%

6,002

5,889

EBITDA margin 20.9% 22.6% +80

• Continued strong expansion of digital businesses and non-linear TV offerings, also through participations (e.g. Broadband TV, Divimove, StyleHaul, Videoland)

1,253

1,333

• Regional expansion into Southeast Asia in cooperation with CBS • Placement of shares and listing on the Frankfurt Stock Exchange, inclusion in MDAX

2012 Page 5


2013

2012

2013

Penguin Random House – Merger to the world’s largest trade book publisher Closing July 1, 2013

Revenues

Operating EBITDA

(in € millions)

(in € millions)

• Merger of Random House with Penguin (Pearson), presence on all continents

EBITDA margin 16.4% 13.7%

• Very good operating performance following exceptional bestseller performance in 2012 • 261 titles on the “New York Times” bestseller list since the merger

+23.9%

• More than 100 million e-books sold • Numerous literary awards, including Nobel prize for literature to Alice Munro and four Pulitzer prizes

2,655 2,142

2012 Page 6


+11

2013

352

363

2012

2013

Gruner + Jahr – Strategic, organizational and management realignment House of content with strong brands

Revenues

Operating EBITDA

(in € millions)

(in € millions)

• New Executive Board, strategic realignment in Germany according to Communities of Interest


• Vitalization of major magazine brands • Positive business development in Germany due to good performance of the G+J magazines in the advertising market • Revenue shortfall due to divestitures and declining revenues mainly in the international business

-6.9%

2,218

2,065

• Investments in digital transformation and new businesses

-20

• Expansion of digital business through organic growth and acquisitions

2012 Page 7


2013

213

193

2012

2013

Arvato – Focusing on fast-growing services Change in leadership and reorganization

Revenues

Operating EBITDA

(in € millions)

(in € millions)

• New CEO and reorganization according to Solution Groups and countries • Slight increase in earnings, stable revenues • Significant growth from services for customers in the internet, high-tech and consumer goods sectors

EBITDA margin 8.9% 9.1% -0.1%

4,419

4,414

• Acquisition of Gothia Financial Group as largest transaction in Arvato’s history +10

• Growth in China

2012 Page 8


2013

391

401

2012

2013

Be Printers – Difficult market environment Strong position in the print market

Revenues

Operating EBITDA

(in € millions)

(in € millions)

• Revenue and operating EBITDA below previous year due to lower volumes


• Price pressure due to overcapacity in the market • Efficiency programs and plant closures to offset negative market development • Stable earnings development in America -7.5%

1,214

2012 Page 9


-23

1,123

2013

115

92

2012

2013

Corporate Investments: BMG – Acquisition of 100%, additional catalog purchases and artist signings Number 4 worldwide in the music rights business • Buyout of partner KKR as of March 30, 2013 • Purchase of additional music catalogs, including Mute, Primary Wave, Virgin/Famous, Sanctuary and Talpa • New contracts signed with numerous international and national artists, e.g., Mick Jagger, Keith Richards, Robbie Williams and the Backstreet Boys • Expansion of presence in the most important music markets, including new office in Canada • Music rights management for copyrights, master rights and audiovisual rights • More than 1 million copyrights • 13 Grammy Awards in 2013 Page 10


Financial key figures 2013 – Significant increase in group profit 2013 (in € millions)

Change vs. 2012

Operating EBITDA

2,313

+5%

+103

Depreciation/Amortization

-559

-17%

-81

Special items

-46

n.m.

+359

+29%

+381

-12%

-39

EBIT

1,708 -361

Financial result Income taxes

-419

-7%

-26

Earnings after taxes from discontinued operations

-58

n.m.

-58

+42%

+258

Group profit

Page 11


870

Investments and free cash flow 2013 – Strategy implementation leads to significant increase in investments Investments (in € millions)

Operating free cash flow (in

€ millions)

Cash conversion rate

+204% 1,988

107%

100%

-5.4% 1,180

655

Acquisitions

411

Intangible assets

390

397

Other

2012

2013

177

88

 Increase particularly through acquisitions

Page 12


1,861

1,760

2012

2013

 Continued strong cash generation, targeted cash conversion rate: 90-100%

Placement of shares of RTL Group – Proceeds of €1.5 billion Starting point • Additional equity required to finance group strategy • Raising of capital at divisional level

Placement of RTL Group shares • Sale of 25.5 million shares of RTL Group results in proceeds of €1.5 billion • Bertelsmann continues to be majority shareholder with stake of 75.1% • Inclusion in MDAX and MSCI World

Page 13


Financial position 2013 – Stronger financial position creates strategic flexibility Economic debt (in € millions)

Leverage factor

2012 Net financial debt

2013

2012

-636

2013

2.0

-1,218

Target < 2.5 -1,944

Pension provisions

2.3

Equity ratio (in %) 32

2012

-2,146

2013 Present value operating leases Profit participation capital

41

-1,185 -997 -413 -4,773

-413 -4,178

Target > 25

Rating Baa1, stable BBB+, stable

Page 14


Strategy

Bertelsmann Managment SE Executive Board

Overview – Transformation along four strategic priorities Target portfolio Higher growth

More digital

More international

Strategic priorities

Page 16

1

2

3

4

Strengthening the core

Digital transformation

Growth platforms

Growth regions


Strengthening the core – Strategic strengthening of Bertelsmann’s book publishing business 1835 – Gütersloh

Page 17


2013 – New York, London, Barcelona, Melbourne, New Delhi

Revenues

Strengthening the core – Strategic strengthening of Bertelsmann’s book publishing business

250

€3,000,000,000 $4,000,000,000 £2,600,000,000

imprints

700,000,000 books sold per year

15,000 New publications per year (incl. Verlagsgruppe RH Germany)

Page 18


261 “The New York Times” bestsellers July to December 2013

over

70

Nobel prizes

Strengthening the core – Key success factors for the merger of Penguin Random House Integration

Innovation

Supply chain

Systems Processes Corporate culture

Digital product development

Author services

Digital Marketing Tools Data analytics Digital sales channel development

Page 19


International footprint

Strengthening the core – Passion for our authors and books is the most important success factor Charlotte Link Mark Owen

David Mitchell

Diana Gabaldon

John Grisham Ina Garten

Lauren Kate

Paulo Coelho

Lena Dunham

Danielle Steel

Jamie Oliver

Harlan Coben

Timothy Geithner

Emily Giffin

Ken Follett

Janet Evanovich

Robert Gates J.D. Robb

Haruki Murakami R. J. Palacio

Nora Roberts Neil Patrick Harris Sue Monk Kidd Page 20

Lee Child

Geoffrey Ward and Ken Burns

Isabel Allende


James Patterson Clive Cussler

Jodi Picoult

Dan Brown

Digital transformation – Strong performance of RTL Group through leading market positions Broadcast

Content

Digital

• #1 or #2 in eight European countries

• World’s leading content producer for TV entertainment

• Digital: integral component of all core businesses

• 8,500 program hours per year; distribution in over 200 countries

• Innovative ad sales on all screens and devices

• Leading broadcaster: 55 TV channels and 27 radio stations

Page 21


Digital transformation – Video stands at the core of RTL Group’s digital strategy … Strategic focus

Top 10 global players1)

Strong growth Video views RTL Group Full year (in billions)

1

Video on Demand Catch-up TV services

+143%

16.8

2

Web Originals Original content production

6.9

3

Multi Channel Networks Worldwide distribution

2012

2013

1) ComScore Video Metrix, based on the average figures for video views per month in Q4/2013; excluding Asia and Russia, ad networks and ad exchanges RTL Group: adjusted internal figures, average Q4/2013, including Broadband TV and Videostrip, excluding Divimove, StyleHaul and Atresmedia Page 22


#

Companies

1

Google / YouTube

2

Facebook

3

AOL (incl. Adap.TV)

4

VEVO

5

DAILYMOTION

6

RTL Group

7

Maker Studios

8

Hulu

9

Microsoft Sites

10

Yahoo Sites

Digital transformation – … and is accelerating the digital transformation of the TV business

revenue from online ✔ Increase advertising and online transactions

✔ Expand non-linear offers

• €236 million online revenues in 2013 • Revenues from online video advertising +31% year on year change

• Europe’s #1 media company in the online video segment • 2.2 billion online video views per month1)

Multi Channel ✔ Develop Network business

• Market entry through investment in Broadband TV, the #3 Multi Channel Network on YouTube2) • Investments in fashion and comedy portals

1) Average Q4/2013, excluding Divimove, StyleHaul and Atresmedia 2) Comscore YouTube partner ranking (excluding music offers)

Page 23


+26% Growth of total online revenues compared to the previous year

Growth platforms – Continuous expansion of strong market position of Arvato Financial Solutions

Financial services

Arvato Financial Solutions

individual solutions international customers

#3 in Europe

Execution payment processing risk management

largest acquisition in Arvato‘s history

Growth drivers

> 30%

internationalization increase in digital payments

Page 24


average revenue growth in the last ten years

6,000 employees in 21 countries

10,000 B2B customers worldwide

100,000,000 risk assessments per year

Growth platforms – Arvato as leading service provider with integrated service portfolio for e-commerce companies European e-commerce market 20131)

E-commerce at Arvato • Service portfolio: IT solutions front and back end, CRM solutions, delivery and returns logistics as well as financial services • Industry focus: trade, fashion and electronics/high-tech

US$

166 bn

> 10% growth p.a.

• More than 3,000 employees • Over 70 webshops for international brands  Arvato is Europe‘s #1 service provider in fashion e-commerce

1) Forrester Research Page 25


Growth platforms – Accelerated expansion of activities in education segment Bertelsmann focus

Current activities

Outlook

Higher education online

• Investment commitment in a three-digit million range for successor fund University Ventures Fund II

Higher education services

• Initial investments of fund already expected in second quarter 2014 • Ongoing review of potential investments

Higher education medical  High, profitable market growth supported by mega trends

Page 26


 Partnership with entrepreneurs via University Ventures I

 Accelerated expansion, University Ventures II

Growth regions – Expansion of Bertelsmann’s activities in 2013

China

Brasil India Thailand Education Ventures

Malaysia Singapore Page 27


Philippines

Creativity – Foundation for economic success

2.2bn

#1 or #2 broadcaster in eight European countries

200,000 downloads of “Geo” app since launch

13.4m unique users per month on Chefkoch.de

monthly video views

> 90 journalism awards won in 2013

> US$ 1bn in music rights

13 Grammy Awards

> 1m song rights

15,000 new publications in 2013

Page 28


77.000 e-book-titles

107m 100m e-books sold in 2013

TV households reached in Europe

Outlook – Long-term profitable growth Outlook 2014

Perspective (Revenues in € billions) ~20

Significant increase in revenues 16.4 Continued high profitability

Increase in group profit 2013

Page 29


Declining businesses

Organic growth

Acquisitions

3–5 years

Summary

1

Page 30

Strong business development with good operating performance and high profitability


2

Major successes in implementing strategy in 2013, now continuation along all four strategic priorities

3

Revenue growth and high profitability expected in 2014, €20 billion revenues as medium term objective