ANNUAL REPORT 2004 RTL GROUP RANDOM HOUSE GRUNER + JAHR BMG ARVATO DIRECT GROUP ANNUAL REPORT 2004 REPORT ANNUAL BERTELSMANN Bertelsmann Financial Highlights in € millions IFRS IFRS IFRS IFRS IFRS Pro forma 7/1/–12/31/ 2004 2003 2002 2001 2001 Business Development Revenues 17,016 16,801 18,312 18,979 9,685 Operating EBIT 1,429–––– Operating EBITA – 1,123 936 573 164 Net income before minority interest 1,217 208 968 1,378 931 Investments 930 761 5,263 2,639 1,067 Total assets 20,970 20,164 22,188 23,734 23,734 Personnel costs 4,204 4,151 4,554 4,812 2,343 Equity Subscribed capital 1,000 606 606 606 606 Retained earnings 6,510 6,060 6,079 5,697 5,697 Minority interest 1,336 965 1,059 2,081 2,081 Equity 8,846 7,631 7,744 8,384 8,384 As percentage of total assets 42 38 35 35 35 Economic debt1) 2,632–––– Leverage factor2) 1.6–––– Net financial debt – 820 2,741 859 859 Debt payback factor3) – 0.6 2.5 2.9 – Net income Net income before minority interest 1,217 208 968 1,378 931 Net income after minority interest 1,032 154 928 1,235 949 Dividend Bertelsmann AG 324 220 240 – 300 Employees (in absolute numbers) Germany 27,350 27,064 31,712 31,870 31,870 Other countries 48,916 46,157 48,920 48,426 48,426 Total 76,266 73,221 80,632 80,296 80,296 Profit participation payments 76 76 77 77 39 Employee profit sharing 29 29 34 – 19 1) Net financial debt plus provisions for pensions and profit participation capital 2) Economic debt / Operating EBITDA (after modifications) 3) Net financial debt / Cash Flow Bertelsmann Annual Report 2004 Contents | 1 ANNUAL REPORT January 1 through December 31, 2004 Letter from the Chairman 2 Executive Board 6 Management Report 10 Corporate Governance at Bertelsmann 45 Supervisory Board Report 46 Consolidated Financial Statements as of December 31, 2004 Consolidated Income Statement 50 Consolidated Balance Sheet 51 Consolidated Cash Flow Statement 52 Consolidated Statement of Changes in Shareholders’ Equity 53 Segment Reporting 54 Notes 56 Boards and Mandates 102 Auditor’s Report 105 Select Terms at a Glance 106 Financial Calendar and Imprint 107 2 | Letter from the Chairman Bertelsmann Annual Report 2004 Dear Friends of Bertelsmann, the world developed new ideas, innovative products and services. The Executive Board has earmarked addi- tional funds for investment in these endeavors. All corporate divisions have made it their goal to grow and continue to improve results. Their strategies are widely diversified. For instance, in light of the in- creasing fragmentation of the TV markets, RTL Group plans to establish more clusters, or “families” of chan- nels. At the same time, broadening its portfolio will re- The year 2004 was a good one for Bertelsmann. Despite duce dependence on advertising sales. As a complement tough market conditions, we significantly improved op- to its strong businesses in Germany and France, RTL erating results and return on sales. Many of our most Group is getting involved in new TV markets. One exam- important businesses showed renewed growth and we ple is Croatia, where RTL Televizija has had an excellent were able to demonstrate anew our company’s innova- start. In Germany, the first interactive dating channel tive strength. was launched: “Traumpartner TV” invites viewers on a In 2004, Bertelsmann met or exceeded all its tar- quest for their dream partner to participate in TV chats gets. In 2005, we continue resolutely on this success- by sending SMS and MMS messages. ful path. Arvato, our international media services group, In the last Annual Report, I presented GAIN, our will invest in additional countries and new lines of Growth and Innovation initiative to promote quality, business. The success of Arvato Mobile is one example creativity and renewal. We have put this initiative at the of our rapid response to impending market changes. center of our entrepreneurial actions to enable us to The company identified the trend toward multimedia achieve organic growth in revenues and earnings in usage of mobile phones early on. Today, Arvato Mobile the years ahead. offers a variety of services related to the digital distribu- This strategy has been an immediate success. tion of content, such as music, videos, games, images, Roughly 100 new business ideas with a medium-term and ringtones. Arvato is also focused on building a revenue potential of around €1 billion are currently on platform for downloading media products to mobile the Bertelsmann GAIN agenda. Our divisions around phones. Arvato’s special skills – custom-tailored ser- DR. GUNTER THIELEN Bertelsmann AG Chairman & CEO Bertelsmann Annual Report 2004 Letter from the Chairman | 3 vices and customer focus – are in areas that present U.K. and almost four million copies worldwide. Another many interesting new avenues for growth. example is Random House’s decision to become a major The achievements of Gruner + Jahr verify that the publisher for the international market of comic-style creation and distribution of top-notch media content illustrated Japanese “Manga” novels, thereby opening a remains our vital core business. G+J launched more potential readership for them with a whole new, broader than 20 new titles last year. The performance at Prisma adult target audience in the Western world. Presse in France was nothing short of sensational: Its Direct Group, too, is putting new ideas into prac- decision to publish bi-weekly TV guides for the first tice: one example is Yourmusic.com. The members of time in the country’s history resulted in France’s most this Internet-based music club receive the CD of their successful magazine launch ever. “Télé 2 Semaines” has choice each month, plus access to several thousand since become a fixture in the French market with 1.4 titles at the same low price. The Circulo de Lectores million copies sold per issue, while its sister publication book club in Spain has further strengthened its role as “TV Grandes Chaînes” has circulation of over a million a cultural institution through brand-building activities. copies. In Germany, “Neon” magazine was named a These include recruiting honorary celebrity members, “Newcomer of the Year,” and in The Netherlands “Quest” opening new cultural centers, and setting up its own magazine was hailed as “Launch of the Year.” foundation. France Loisirs is catering to new target Achieving growth often entails striking new paths. groups as well. Recently opened media stores known Throughout our long history, we have learned that tak- as “Place Media” are a combination of club store, book- ing non-traditional strategic and creative approaches store, multimedia store, and photo shop in an easy-to- in our businesses can result in major successes. The shop atmosphere. Direct Group initiated its expansion leadership of the Random House Group in the U.K. in Eastern Europe with the acquisition of a profitable recently delivered an excellent example. Several of their family media club in the Ukraine. imprints published Mark Haddon’s novel “The Curi- We strive to recruit and retain the most talented ous Incident of the Dog in the Night-time” in two dif- people in media. This includes editors, authors, mu- ferent editions, one set for children and another one sicians, and producers as well as executives, the latter for adults. As a result, the author won the “British Book whom Bertelsmann gives extensive entrepreneurial Award 2004” in two categories. To date, Random House freedom. The principle of decentralization and delega- has sold nearly two million copies of the book in the tion of responsibility is an essential element in Bertels- “Achieving growth often entails striking new paths. Throughout our long history, we have learned that taking non-traditional strategic and creative approaches in our businesses can result in major successes.“ 4 | Letter from the Chairman Bertelsmann Annual Report 2004 mann’s corporate culture. We firmly believe that culti- market threatened by counterfeits. The merger with vating an environment where entrepreneurs can flou- Sony Music was the right step to meet this challenge: rish leads to vibrancy, innovation and growth. We believe that the joint venture has already made our Where outstanding creative and entrepreneurial music business much more competitive. minds are at work, there are innovative and inspired Beyond the joint venture with Sony, Bertelsmann ideas in development – which is why we encourage all Music Group will continue its highly successful music our employees to keep learning and continue their pro- publishing business as a separate company. Composers fessional education. At the executive level, Bertelsmann and songwriters signed with BMG Music Publishing University provides a valuable platform for sharing held top slots in the world’s major music markets nearly best practices. Bertelsmann’s 76,000 plus employees every week last year. have the opportunity to pursue personal development The planned gravure joint venture between in their work as well. Qualification is one of the keys to Gruner + Jahr, Arvato and Axel Springer AG has long-term job security, so we offer a modern and com- brought us a big step further after one of our most prehensive range of opportunities for education and complex transactions in recent years. The joint ven- skills enhancement. ture will include the printing operations in Ahrens- The year 2004 was also one in which the group burg, Darmstadt, Dresden, Itzehoe and Nuremberg, as took important strategic steps to strengthen its struc- well as the printing plant currently under construction ture and portfolio, with a focus on the challenges ahead. in Liverpool. Pending the EU Commission’s approval, In July, the European Commission approved the this will be a future-proof pan-European company.