INVESTOR DAY June 01, 2006 Books - A longstanding commitment to profitable growth - Investor Day June 01, 2006
A long history of growth and acquisitions
1826 1980 1996 1998 2000 2001 20200303 20200404 20062006
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Focused on the markets where paper will prevail
Book publishing
Consumer Professional
Trade* Education* 67% 33%
Literature / «K-12» Illustrated Reference & Fiction - Non Primary / Secondary books Partworks Fiction College/university
Main countries France UK USA Spain Latin America Japan Role of paper-based content
* Hachette Livre 2005 data, pro-forma with 12 months integration of Time Warner Book Group page 3 Books - A longstanding commitment to profitable growth - Investor Day June 01, 2006
From local leadership to global presence
Benchmark 2005 (Trade & Education) including the acquisition of Time Warner Book Group in € Millions Pearson 4,209
Mc Graw Hill Education 2,151
Hachette Livre 2,104 Hachette Livre & TWBG Random House 1,828
Scholastic* 1,673 # 3 worldwide # 1 Europe De Agostini* 1,592 # 1 France # 1 UK Reed Elsevier 1,315 # 1 Australia N-Zealand Holtzbrinck* 1,145 # 2 Spain # 5 USA HarperCollins* 1,068
Houghton Mifflin 1,032
0 1,000 2,000 3,000 4,000 5,000 Note : strong impact of the €/$ exchange rate on US groups. * Holtzbrinck (2003-2004), De Agostini (2002-2004), Scholastic & HarperCollins (Data for year ending 30.06.05) Data 2005, excluding professional sales and book clubs whenever possible page 4 Books - A longstanding commitment to profitable growth - Investor Day June 01, 2006
A significant transformation : from French to multi-local leader
Split in sales by country (1997-2005)
100% 12% 31% 50% 62% Other Other Other Other Spain 88% UK USA UK Spain 69% UK Spain 50% 50% France Spain France 38% France France
0% 1997 2001 2004* 2005**
* Hachette Livre 2004 data, pro-forma with total integration of Hodder Headline ** Hachette Livre 2005 data, pro-forma with 12 months integration of Time Warner Book Group page 5 Books - A longstanding commitment to profitable growth - Investor Day June 01, 2006
Healthy organic growth and acquisitions have fuelled expansion …
Hachette Livre like-for-like sales analysis (1996-2005, € Millions)
2,104 11 Discontinued Business*
+ 3.9% p.a. organic + 11.8% p.a. external 1,327
2005 Perimeter 2,093 766
172*** 224
542
1996 Organic Growth External Growth 2005**
* Direct Sales of Encyclopaedias ("Courtage") ** Hachette Livre 2005 data, pro-forma with 12 months l integration of Time Warner Book Group *** Discontinued sales page 6 Books - A longstanding commitment to profitable growth - Investor Day June 01, 2006
… and Hachette Livre has more than doubled its size in three years
Æ Hachette Livre’s targets - formulated in 2003 - have been met:
To be at the core of the consolidation of the French and Spanish markets (acquisition of Editis)
To boost the international development of partworks
To accelerate Hachette Livre’s external growth in Europe, in priority in the UK and Spain, as well as in education, within reasonable financial limits
Imprints Turnover (€ Millions) + €104 M + €2,104 M + €460 M
+ €235 M + €346 M
+ €959 M
Hachette Editis Hodder Time Warner Organic Hachette Livre 2003 Headline Book Group Growth* Livre 2005 **
* Organic growth of the Hachette Livre 2003 perimeter, excluding any organic growth from acquisitions (included in the acquisitions perimeter) ** Hachette Livre 2005 data, pro-forma with 12 months integration of Time Warner Book Group page 7 Books - A longstanding commitment to profitable growth - Investor Day June 01, 2006
With growth also came a substantial profitability improvement
Sales and operating margin (2000-2005, € Millions, and % of sales) 1,644 Sales, French GAAP standards Sales, IFRS standards 1,432 1,420 Operating margin
950 959 830 846 12.1% 11.1% 11.6% 11.5% 9.6% 7.7% 7.0%
2000 2001 2002 2003 2004 2005
Octopus Editis + Hodder Hodder Headline Acquisitions + Bruño Headline (3 months) (12 months)
page 8 Books - A longstanding commitment to profitable growth - Investor Day June 01, 2006
Better performance than top industry player averages
Operating Profit / Sales* (%, 2004)
12.6% 12.1%
8.8%
6.9%
Market average Market average Trade Market with Hachette Hachette Livre Education Livre mix
* Benchmark of the 25 leading consumer publishers worldwide (for which data were available) page 9 Books - Solid growth prospects - Investor Day June 01, 2006
The book market continues to offer solid growth prospects
Æ The market in which Hachette Livre operates is growing
In emerging markets, books embody the access to knowledge (management books, testimonials, self-help books) and education
In mature countries, marketing and segmentation create new avenues of growth
Books complement other media
Segmentation and range extensions leverage our brands and bestsellers
New segments have emerged: mangas, religious books, audio-books
Æ Book publishing has fared well through the turmoil created by new technologies. In our core markets, Book publishing will benefit - not suffer - from new technologies
Books have successively weathered the press, radio, cinema, and TV "storms"
Books are today a fast moving consumer good, perfectly adapted to modern retail
Digital media consumption does not affect time spent reading books
Digital formats have not proven to add value. However, Book publishing will increasingly rely on the Internet
Internet is becoming a new media, which we will use to support our brands
It will help us provide complementary tools for teachers and students in conjunction with textbooks
It is already an additional retail channel, making books more ubiquitous than ever page 10 Books - Solid growth prospects - Investor Day June 01, 2006
The global book market is growing, even in industrialized countries
Market size 2004 et CAGR 2000-2004 (publishers net sales)
Developed markets Emerging markets
10.0% 10.0% 10.0% 9.0% 8.6% 8.0% 8.0% 6.0% 6.0% CAGR 6.6% 4.0% 4.0% 3.3% 2.8% 4.0% 2.3% CAGR 2.8% 2.0% 2.0% 1.1%
0.0% 0.0% USA UK France Spain China Latin Eastern India America Europe
Market Size 23.2 bn 5.3 bn 2.6 bn 1.9 bn 3.4 bn* ~2bn ~2bn* 1.0bn* 2004 in €
Books have maintained their consumer appeal Books provide access to knowledge and keep attracting new readers thanks to the development of children fiction, e.g. Harry Potter
* Eastern Europe, China and India: 2003 data page 11 Books - Solid growth prospects - Investor Day June 01, 2006
Marketing and segmentation have fuelled market growth
Marabout turnover vs. Market turnover
50 CAGR = 21.4% 45 (vs. market at 4.0%) 40 38.2 35 32.6 € 30 28.5 25.4 15 25 18.8 20 € 14.5 5 15 2 10 5 € 10 0 2000 2001 2002 2003 2004 2005 € 8 Marabout turnover (in M€) € 2
€ 7 page 12 Books - Solid growth prospects - Investor Day June 01, 2006
New segments have emerged
CAGR by Segment US UK France
44.6%
30.6%
23.0%
16.3%
8.1% 8.6% Book Market 4.0% CAGR 2.8% 2.3% 2000-2004
Religious Audio-Books Religious Humour Partworks Mangas
2000-2005 2004-2005 2003-2005 2003-2005 2003-2004 2003-2004
page 13 Books - Solid growth prospects - Investor Day June 01, 2006
Books have their share of innovation breakthroughs
Hyper-segmentation (e.g. collection, price architecture) 44 000 (2000’s) Segmentation (e.g. tourism, children, self 25 000 help) (1990’s)
Paperback 15 000 INTERNET (1950’s)
Illustrated TELE- • New media / books 13 000 VISION (1920’s) channel rather than new Hardcover RADIO competitor
• Movies and radio programs # of new books 11 000 MOVIES allow to develop new releases / year (1900’s) segments and leverage PHOTO recognition of celebrities / AND characters • A new life for best-sellers IMAGE (and back-list sales) • New formats (paperback) new channels (clubs, mass retail) ; PRESS mass market books mirror the • Development of development of mass media illustrated books: • Books are often children, women pre-published as interest, science series in page 14 newspapers Books - Solid growth prospects - Investor Day June 01, 2006
Internet reach and book sales have grown in parallel
Weekly hours spent in media-related activities Internet penetration vs. book Non-users vs. experienced Internet users, in the US industry growth in the US (hours, 2004)
P2P and Ipod Listening to 4.8 phenomenon 6.5 25 23.4 23.7 250 music 22.4 20.8 21.1 Listening to the 8.1 20 200 radio 8.3 5.5 15 122 144150 Reading books 5.3 113 117
16.2 10 100 Watching TV 11.3 5 50 Reading 3.1 magazines 2.0 0 0 Reading 4.7 2000 2001 2002 2003 2004 newspaper 2.7
Non users of the Internet Book Market ($bn) Experienced Internet users At home internet users (M of users)
page 15 Books - Solid growth prospects - Investor Day June 01, 2006
Internet becomes a new media for books
Internet is a new sales Internet complements Internet is a new media to channel textbooks promote books
• The development of on-line • Textbooks are the inescapable • Web sites offer new bookstores enhances the pillar of school programs: opportunities to visibility of books and - exhaustive, not amendable - promote best-sellers backlist in particular - fits the basic reflexes of - provide range visibility cognitive learning (linear and - Enrich the content of chronological vs. indexed) brands • Internet is a powerful complement : tutorials, testing, relationship management
page 16 Books - Solid growth prospects - Investor Day June 01, 2006
The web offers new opportunities to promote brands and books
Routard.com 2004/2003 2005/2004 Change in # of copies sold + 3% + 6% Change in # of pages read + 42% + 75%
page 17 Books - Solid growth prospects - Investor Day June 01, 2006
The development of on-line bookstores enhances books visibility
Share of on-line sales Leaders actively promote the depth and breadth of their offer (%, 2004) #1 most visited merchant website in Europe in 2002 (17.3 M visitors) USA 10.5% "Online shopping from the earth's biggest selection of books, magazines, music. "
"Barnes & Noble.com is the Web's premier UK 9.0% destination for Books, DVD, Music…"
7th most visited merchant website in Europe in 2002 (1.7 M visitors) Germany 4.5%
"Over 100 million new, used, rare, out of print, France* 2.4% and international books for sale."
Spain 0.9% • Traditional bookstores are compelled to maintain a large assortment to remain competitive • In countries where book prices are not regulated, on-line bookstores are not the most aggressive on price
* France: 2005 data page 18 Books - Solid growth prospects - Investor Day June 01, 2006
Digital products and services create additional opportunities in education
Æ New products and services are developed, for which brands are of key importance: services to teachers and schools, performance evaluation systems, independent courses, digital services complementary to textbooks
Educational publishing skills
Content publishing Services Mainly paper Paper Digital Other Tests / Textbooks Digital support Supplementals Supplementals Services Scoring
UK Market * ~$360M ~$130M ~$120M ~$65M ~$350M
Description • Textbooks • Textbooks for • Exercises on • Content • Centralized (paper or teachers and CD-Rom, management, Tests system electronic) parents Internet, Students • Exercise books Video or follow up, … •Print Films
* 2002 data page 19 Books - Solid growth prospects - Investor Day June 01, 2006
Hachette Livre has developed strong digital know-how in education
Production of digital Diffusion/ Distribution of Schools Education tools digital educative content Digital Work Environment
Definition •Market of digital education supports is "Digital Education Newsstand" growing in all countries (KNE)
•Hachette Livre education publishers KNE is an on-line catalogue with have created a wide range of digital digital education products (exercise Services for teachers, students and parents: and interactive educative products books, interactive lessons), DWE offers a At home or at dictionaries and atlas. Agenda, homework list, Example of an interactive map by results book, lessons, personalized school, DWE is Hatier: Events leading to World War I The products can be tested and absence book … space (login) available on the purchased on-line. Internet Education Government orientations: "By 2007, all students and teachers should have access to DWE"
KNE gathers all group education Hachette Livre's offer publishers as well as prestigious Scolastance Key third education •Intranet and Extranet events houses (Belin, providing school services Magnard, and teaching skill supports Encyclopaedia •Scolastance is a strategic Universalis) tool to enter a school
Alliances Chronological groups scale page 20 Books - A business model based on checks and balances - Investor Day June 01, 2006
Our business model, based on a balanced mix of activities, provides further organic growth prospects Æ The business model is based on
A balanced mix of activities
Balance between the cyclical high margin education business and the more steady trade business
Balance between three language clusters
an organizational model that commands decentralization and autonomy where it counts and economies of scale in support functions
Æ Recent additions to the portfolio reinforce the model and offer additional growth opportunities
Editis: reinforced leadership in France, strong base in Spain/South America
Hodder Headline: scale in the UK, strong foothold in the Education market
Time Warner Book Group: scale in the Anglo-Saxon world (US, UK, Australia-New Zealand)
page 21 HACHETTE LIVRE :
Books - A business model based on checks and balances - Investor Day June 01, 2006
Hachette Livre has a balanced portfolio
Hachette Livre 2005 pro-forma turnover*
Other Distribution 1% Education** Partworks 7% 10% 24%
5% Reference 11%
Illustrated 42% Literature
* Hachette Livre 2005 data, pro-forma with 12 months integration of Time Warner Book Group ** Including professional and university activities page 22 HACHETTE LIVRE :
Books - A business model based on checks and balances - Investor Day June 01, 2006
Hachette Livre has international presence in all key market segments
International markets Local markets
PARTWORKS TRADE
• Hachette Livre (FR) • Hachette Collections • Octopus, Orion, (FR) Hodder Headline, • Hachette Partworks TWBG (UK) (UK) • TWBG (USA) • Salvat (SP) • Anaya, Bruño (SP) • Hachette Fascicoli (IT) • Wiedza i Zycie (PO) • Hachette Partworks (Japan)
REFERENCE EDUCATION
• Larousse (FR) • Hachette Livre (FR) • Chambers Harrap • Hodder Headline (UK) • Anaya, Bruño (SP)
Local presence Indirect presence page 23 Source: internal data Books - Contributor to the consolidation of the industry - Investor Day June 01, 2006
The virtuous circle of leadership
Commercial Publishing Manufacturing Distribution Presence
Æ Magnet for best Æ Economies of Æ Regular presence in Æ Ability to compete for selling authors, as scale in: point of sales via third party distribution leaders offer: sales force / contracts Paper merchandisers Dense purchase commercial Æ Economies of scales Printing and presence binding Æ Ability to negotiate in warehousing and with “central buyers" logistics Ability to invest in brand creation Æ In retail stores which Æ State-of-the-art carry narrow ranges facilities (e.g. hypermarkets), the leader is bound to have an over- proportionate share of shelf
page 24 Books - Contributor to the consolidation of the industry - Investor Day June 01, 2006
Investments required to create brands will benefit the leaders
Trade Education
Best-selling authors increasingly attracted by A high entry-barrier market, leading imprints and highly concentrated, with few Increasing upfront Strong upfront publishing groups local market leaders reaping all investments to pre-empt investments in the benefits from size. best-sellers rights creation process of textbooks
Logistics expertise Important commercial and clout key to effort and market Marketing skills ensure visibility of know how to assure Increasing pressure increasingly new releases return on investment. from the market to important to promote (the reputation of the offer add-on products books brand is more important (supplementals, than price in the teachers selection process) handbooks, audiovisual support)
page 25 Books - Contributor to the consolidation of the industry - Investor Day June 01, 2006
Entering the UK market, the first step towards international stature
Æ The acquisition of Hodder Headline was a unique opportunity for Lagardère
To become #2 player in the UK Trade market, the second largest in Europe which has experienced consistent growth
To establish a presence in the UK Education market with a strong and very profitable activity
To replicate its diversified publishing/distribution business model in the UK
To realize significant synergies in distribution back-office, printing, IT, in children books, illustrated books and overseas activities (Australia, New Zealand)
Æ Hodder Headline enjoys a very attractive position
It is a well established publisher: # 4 publisher in the UK Trade Market and # 6 in the Education/School market
Hodder Headline is one of the publishers with the most balanced portfolio. It is present in every segment in which Hachette Livre participates
page 26 Books - Contributor to the consolidation of the industry - Investor Day June 01, 2006
Hodder Headline has a balanced and diversified portfolio*
UK Consumer: 98.2 M£** Hodder Headline sales by activity
(%, 2005) Æ Hodder General: £ 39.8 M Æ John Murray: £ 3.6 M
General fiction (60%) and non fiction Quality literary focus Distribution (40%) Æ Children's: £ 10.9 M
Imprints: Hodder & Stoughton, Trade: Children's fiction & non fiction Education 8% Spectre, NEL, Coronet, Flane School libraries: Fiction & information books Æ Headline: £ 39.8 M Imprints: Signature, Bite, Silver, 23% Mass market with bestselling authors Wayland (J. Patterson, P. Vicenzi)
56% Imprints: Review, Headline
Æ Religions: £ 3.6 M 14% UK Christian books, humour books Overseas Consumer Trade Established player with a strong portfolio of authors Leveraging cross marketing / cross selling opportunities between children's and education
Overseas: 23.6 M£ Education: 39.4 M£
Æ Imprints: Hodder Headline Australia, Hodder Moa Æ Activities : Schools (secondary textbooks), Further/higher Education, Beckett (Nz), Photogenique (Nz) Consumer Education (Home learning & adult education), Health Sciences (further education & professionals textbooks related to health), Journal & References
Good position The most successful education publisher with a wide portfolio of activities Opportunity for HL to expand its business model Opportunity to explore growth potential in digital education
* Hodder Headline business was not included in former presentations to investors ** Revenue 2005 page 27 Books - Recent additions to the portfolio reinforce the model - Investor Day June 01, 2006
A strong foothold in the attractive Spanish-speaking book market
The Spanish market is developed Anaya reinforces the group's presence in the and feeds the Latin American market Spanish speaking world
# 1 country for the production of books In the Spanish speaking market, Hachette Livre is leader in education and holds the # 3 position in the trade market
Book production by inhabitant Positions in the Spanish Education & Trade Market * (# of titles for 1000 inhabitants, 2004) Education Trade 18 10 6 Other ~200 Other players Spain France USA Susaeta EDB Everest EdiciBones OUP Trade Edicions 62 Santillana €45M Océano Santillana H Livre RHM Santa Maria # 4 export country Education €115M Planeta Hachette Livre
Hachette Livre sales in Spain + Latin America amount to 259.9 M€ in 2005, vs. 62.7 M€ in 2001
* Hachette Livre’s position here above excludes its partworks, reference and distribution businesses. page 28 Books - Recent additions to the portfolio reinforce the model - Investor Day June 01, 2006
TWBG has demonstrated superior, bestseller-driven, revenue growth
Æ Favorable segment mix, and growing within segments faster than the market Æ Its key strength and market positioning is in identifying and developing bestsellers in a wide array of categories (Adult Fiction, Youth, Spiritual / Religious) Æ Bestsellers (> 300,000 copies) account for a significant % of revenues, involving some fluctuations inherent in bestseller performance, but strong underlying growth trends
TWBG estimated market shares (Nielsen) Global Revenue (Units M, 2005) (US$ M)
600 571
16% 500 479 414 413 400 356 355 369
300 8% 200 3% 100 GroGrowwthth trtrenendd :: +7.+7.88%% p.a.p.a. 0 Market share Market share Market share 1999 2000 2001 2002 2003 2004 2005 Trade US among broad- among bestsellers based publishers EBITDA margin 9.7% 8.6% 10.4% 10.8% 7.8% 9.9% 15.2% (Top 6) (% Net revenues) page 29 Books - Recent additions to the portfolio reinforce the model - Investor Day June 01, 2006
Establishing a US presence in trade, a strategic opportunity
Transatlantic channeling of bestsellers (35 titles)
Æ Prior to the acquisition, Hachette Livre was the only top player not present on both sides of the 100% Atlantic Different Æ Hachette Livre gets access to the key bidding 80 publishing procedures of potential best-selling titles group
Æ Entry into this market represents significant 60 upside potential for Hachette Livre:
secures bestseller rights flows for the UK as well as for France and Spain 40 Same offers the opportunity to better exploit our publishing UK catalogues overseas group in 20 UK and US
0 1989 1999 2003
page 30 Books - Recent additions to the portfolio reinforce the model - Investor Day June 01, 2006
Time Warner Book Group activities
Split in sales by geographic area Split in sales by Imprints (% of net sales, 2005) (% of net sales, 2005)
Bulfinch Audio- Other ANZ* Books Young Warner UK 3% 4% Readers 4% 3% 7% Books 15% Adult Nashville 10% 33%
19% 78% UK imprints** 26% USA Little, Brown Adult
* Including ~4M$ for Lothian business, acquired by Time Warner Book Group in November 2005 ** Including Australian and New Zealand imprints page 31 Books - Recent additions to the portfolio reinforce the model - Investor Day June 01, 2006
Time Warner Book Group imprints
Warner Books: mainstream publishing with Little Brown: Hardcover bestseller focus, mass market bias Literary background
Æ Hardcover, mass market and trade paperback Æ Hardcover, Paperback (since 1993) and a low share of mass market Paperback (since 1991) Æ Adult Fiction and non fiction, Practical series (well-being and business), Crime fiction, Æ Various imprints: Little, Brown, Arcade and Back Religious books Bay (paperbacks)
Æ Adult Fiction and non fiction Net sales growth rates Net sales growth rates ( CAGR 2002-2005) ( CAGR 2002-2005)
2% 8% 1% BL -1% Relevant Market Warner Books Relevant Market Little, Brown
Key Authors Key Authors
Æ N. Sparks, J. Patterson, D. Baldacci, J. Stewart Æ M. Gladwell, J Patterson, M Connelly
page 32 Books - Recent additions to the portfolio reinforce the model - Investor Day June 01, 2006
Time Warner Book Group imprints
Young Readers: Series-driven hits on dynamic Nashville: At the forefront of market growth market
Æ Juvenile books Æ Include two imprints:
Æ Hardbound and Paperbacks (since 2002) Æ Warner Faith (created in 2001) – religious books
Æ Many collections (Gossip Girl, The Clique, etc.) Æ Center street (created in 2003/04) – values and sensibility of heartland America Net sales growth rates Net sales growth rates ( CAGR 2002-2005) ( CAGR 2002-2005) 173% 18% 15% 14%
Relevant Market Young readers Relevant Market Nashville
Key Authors Key Authors
Æ J Patterson, L Harrison, C von Ziegesar Æ Osteen, Meyer, Kingsburry
page 33 Books - What's next for Hachette Livre ? Investor Day June 01, 2006
Hachette Livre will contribute to the consolidation of the industry in its three key language clusters Æ Hachette Livre is now ideally positioned to benefit from local markets growth
Leader advantage in France, UK, and Spain (Education), strong base in the US …
… whereas growth will increasingly be pre-empted by leading players advantaged by
increasing level of investments required (in both Education and Trade)
concentration of retailers
Favorable cycles in educational markets in 3 countries (France, Spain, UK) 2005-2010
Æ Hachette Livre intends to continue to play an active role in the consolidation of the industry, focusing on key areas:
Leveraging the recently acquired scale in the UK, the US and Australia / New Zealand, by acquisition
Extracting revenue synergies from the English cluster of activities
Reinforcing our position in the Spanish language cluster rd Establishing a foothold in India as a first step in the 3 English speaking market
Monitoring the potential developments in China
page 34 Books - What's next for Hachette Livre ? Investor Day June 01, 2006
Opportunities for growth in 3 key areas (segments, markets)
Market Share Analysis
US UK Spain
Trade Education Trade Education Trade Education
Room for Room for Room for Room for growth Other growth growth growth** 25% Top 2 to 5 30% 40% 40% Leader Santillana 60% 55% Océano Harcourt (Reed) Hachette Livre 28% RHM OUP McGrawHill Holtzbrinck Time Warner Book 46% Thomson Pearson EDM Group Learning (Penguin) Hachette Livre 40% Simon & 43% Santa Maria Houghton HarperCollins Granada Learning Schuster 28% 23% Mifflin Random Pearson Santillana HarperCollins House 47% Pearson (Penguin) Nelson Thornes
24% Hachette Heinemann 17% 17% 17% 20% Hachette Random House Pearson Livre* & Ginn Planeta (Reed) Livre
* Hachette Livre 2005 data, pro-forma with 12 months integration of Time Warner Book Group ** 200 little players on the Spanish Trade market page 35 Books - What's next for Hachette Livre ? Investor Day June 01, 2006
In summary …
Æ Hachette Livre is one of the few book publishing groups with global reach and multicultural exposure (English, French, Spanish)
Æ Thanks to Hachette Livre’s financial performance, the Group provides authors and publishers with the stability and the visibility that is necessary to achieve excellence in book publishing
Æ The group has demonstrated its agility to capture above average growth performances and be the driver of the industry consolidation
page 36