Revenues increase by 7.9 percent to €19.3 billion
Operating EBIT up by 16 percent to €1.87 billion
Return on sales reaches new record at 9.7 percent
Net income more than doubles to €2.4 billion
Debt repayment in wake of share buyback ahead of schedule
Number of employees rises to 97,132
Revenues and earnings expected to improve further in 2007
Preparing for the next period of growth

The year 2006 was the most successful in Bertelsmann’s history thanks to continued growth in the group’s revenues and operating results. The international media company announced that revenues rose by 7.9 percent, from €17.9 billion to €19.3 billion, reaching an historic high. The increase is attributed to accelerated organic growth and portfolio effects. Operating EBIT saw a 16 percent increase, from €1,610 million in 2005 to a new record at €1,867 million. Operating return on sales also reached a new high at 9.7 percent, up from 9.0 percent in 2005. The group’s net income more than doubled to €2,424 million (2005: €1,041 million), partly due to capital gains from proceeds. At the end of the year, the number of employees grew to 97,132 (December 31, 2005: 91,559). Bertelsmann made significant progress on paying down its debt from the share buyback.



All corporate divisions of Bertelsmann except BMG improved their financial performance year on year. This applies in particular to RTL Group, which registered a surge in results thanks to a favorable advertising market and the performance of its content division, Fremantle Media. Direct Group doubled its results year on year. The Gruner + Jahr, Random House and Arvato divisions surpassed the high level of results in 2005.

Bertelsmann AG’s Chairman & CEO Gunter Thielen declared: “The figures for 2006 clearly show that we are heading in the right direction. Bertelsmann has never been more profitable. Our 9.7 percent return on sales puts us very close to our ambitious target ROS of ten percent. At this level of profitability, we can generate the cash flow necessary to continue growing without additional debt. We are already preparing for the next period of growth. We plan to actively shape the digital future, worldwide, with our innovative media content and services.”

Consolidated revenues for the year under review amounted to €19.3 billion – a 7.9 percent increase, of which 2.9 percent resulted from improved organic growth (2005: 2.3 percent). Portfolio changes and other effects contributed 5.0 percent (2005: 2.5 percent). Foreign currency exchange fluctuations had no impact on revenues (2005: 0.3 percent).

Operating EBIT was up by 16 percent, reaching €1,867 million (2005: €1,610 million). After considering financial results and taxes, net income amounted to €2,424 million, compared to €1,041 million in 2005. This includes the proceeds from the sale of Bertelsmann’s music publishing business to Vivendi, offset by restructuring and integration costs at Direct Group and BMG. In total, special items amounted to €1,161 million compared to €61 million in 2005.

The pivotal event of the business year was the buyback of GBL’s 25.1-percent stake in Bertelsmann for €4.5 billion, agreed to in May and concluded in July. The buyback was in-part financed by the sale of BMG Music Publishing, increased cash flow and the placement of two benchmark-size Euro bonds. The strategy is further supported by a restricted investment policy through the end of 2007 and a moderate dividend policy.

Gunter Thielen commented: “The buyback grants us a great deal of independence and entrepreneurial freedom. It safeguards our corporate culture of partnership, and strengthens the values that have made Bertelsmann so big and successful over the past 170 years. The new shareholder structure also ensures that much of the profits generated can be re-invested directly into the businesses. We’ve already paid down a sizable portion of the debt, and are well on track to reach our acceptable debt levels.”

As part of financing the buyback, the sale of BMG Music Publishing to Vivendi for €1.63 billion was agreed to in September. The cash was received and the business deconsolidated at the end of 2007. The company remains part of Bertelsmann until final antitrust clearance has been received.

In the period under review, Bertelsmann intensified its focus on emerging markets and digital ventures. RTL Group launched digital special-interest channels in several core markets, along with new video-on-demand, IPTV and mobile TV offerings. Random House branched out beyond its traditional book publishing business by establishing Random House Film; other measures included expanding its presence in Asia. As part of its “Expand your Brand” initiative, Gruner + Jahr extended its strong, established magazine brands to digital channels and developed new products and services beyond the print realm. At the same time, Gruner + Jahr intensified its activity in emerging markets such as China and southeast Europe. The Sony BMG Music Entertainment joint venture expanded its digital offerings and significantly increased the total revenue contribution of digital music sales. The company extended its presence to online and mobile platforms and devoted itself to marketing music video content, e.g. via online social networking sites.

Arvato ventured into emerging markets with innovative offerings and increased outsourcing activities. The division also gained initial – positive – experiences with its public private partnership in East Riding, U.K., where Arvato took on numerous public administration services, in a large-scale pilot project. Direct Group’s clubs generated more customer traffic by successfully intensifying their links with stationary book retail and the Internet. Direct Group added large numbers of new club customers, especially in Eastern Europe.

Chairman & CEO Thielen said: “Each of Bertelsmann’s divisions has formulated responses to the challenges of the future. This was additionally borne out by a comprehensive analysis of the group’s major Profit Centers, which we performed last year. We wanted to know: Are we fit for the future? Are we charting the right course for long-term success? The result was very gratifying: Bertelsmann is strategically well positioned and poised on the threshold to a new period of growth. Three quarters of our businesses occupy the number one or number two positions in their respective markets; 80 percent are above or on par with the market average when it comes to profitability. We have the capacity to grow by between five and eight percent a year starting in 2008.”

In 2006, the volume of investments was less than 2005 – a year characterized by significant investments – and amounted to €1,092 million after €2,565 million in 2005. Apart from increasing the shareholding in the Maul-Belser gravure company and a number of smaller acquisitions across all business divisions, investments were mainly made in property, plant and equipment.

The share buyback increased economic financial debt from €3,931 million to €6,760 million. This figure comprises net financial debt plus provisions for pensions and profit participation capital. At December 31, 2006, the Leverage Factor – or ratio between economic financial debt and Operating EBITDA – was 2.8, and thus exceeded Bertelsmann’s internal debt target of 2.3 or below.

Bertelsmann’s CFO Thomas Rabe declared: “By the end of this year, we will have already come very close to making our internal target of 2.3. At that point, we will again have financial scope of between €1.2 and €1.5 billion per year for acquisitions and €700 million for other ongoing investments. This translates to a total investment volume of six billion euros by 2010.”

In addition to this financial leeway, Bertelsmann is opening up further options by establishing an equity co-investment initiative in conjunction with its partners Citigroup Private Equity and Morgan Stanley Principal Investments. The initiative will allow Bertelsmann and its partners to pursue attractive media-related transactions and co-investment opportunities of significant scale. It will initially amount to €1 billion of equity from Bertelsmann and its partners.

Thanks to the positive developments in its operating performance, Bertelsmann will again pay out profit participation to all eligible employees for fiscal 2006, as in the past.

In May 2007, 15 percent of par value will again be paid out on the Bertelsmann Profit Participation Certificates 2001, under the terms and conditions governing PPC 2001. Payout on the “old” 1992 Profit Participation Certificates will amount to 12.69 percent of par value (2005: 6.97 percent).

The Bertelsmann AG Executive Board is confident about future performance: “We expect further growth in revenues and results for 2007 and 2008,” declared Gunter Thielen.

Other Key Financials:

In 2006, the special items affecting net income but not included in Operating EBIT were distinctly positive at €1,161 million (2005: €61 million). Positive contributions resulted first and foremost from capital gains from proceeds in the amount of €1,410 million, including €1,174 million from the sale of BMG Music Publishing. These gains were partly offset by restructuring and integration expenditures in the amount of minus €68 million (2005: minus €185 million), of which BMG accounted for minus €54 million, and Direct Group for minus €14 million. Apart from this, special items included the cost of an out-of-court settlement with Universal Music Group related to the “Napster” lawsuit, in the amount of €48 million. Special items also include a provision of €101 million for possible future settlements with other plaintiffs in this lawsuit.

During the period under review, Cash Flow from operations was €1,673 million after €1,791 million in 2005. Net cash from investments amounted to €498 million, after minus €2,489 million the previous year. Net cash from financing activities in 2006 – due primarily to the GBL share buyback – was minus €2,198 million (2005: minus €428 million).

Total assets decreased slightly, by €0.4 billion to €22.5 billion, compared with the end of the previous year. Changes in the structure of the balance sheet are largely attributable to the buyback of the GBL stake. As a result, shareholders’ equity at the end of 2006 dropped from €9,170 million to €6,429 million. The equity ratio was 28.6 percent (2005: 40 percent). Considering a 20.4 percent level at June 30, 2006, the year-end ratio had returned to well above the internal target of 25 percent or more.

At the end of the year, Bertelsmann had 97,132 employees worldwide (2005: 91,5591). The increase by 5,573 employees is mainly attributable to organic growth and acquisitions.

1 The number of employees for 2005 has been adjusted to reflect the changed measuring methodology.