HACHETTE LIVRE 1 Table of contents ÎBook publishing is a growing and attractive business 3-6 ÎHow does Hachette Livre capture growth and performance ? 7-9 ÎGrowth drivers of Hachette Livre business portfolio 10-15 Î2004 : the transformation 16-21 ÎWhy is Hachette Livre well positioned to deliver future performance ? 22-24 2 Book publishing is a growing and attractive business Long life expectancy for books ÎBooks remain the #1 cultural product in most countries 2003 Books Pay TV Video Music Cinema (France) value volume value volume value volume value volume value volume Retail sales > €4,5 bn n/a € 2,8 bn n/a € 2,2 bn n/a € 1,64 bn 116 m €1 bn 174 m Net sales €2,5 bn 413 m €1,1 bn 151 m ÎConsumers’ interest for books hasn’t decreased despite the arising of competitive products – especially since Internet and NTIC * France Italy UK Spain USA Number of home-connected Internet users : % growth 2004 +16% +15% +13% +3% n/a % Internet Penetration 2003 41% 40% 51% n/a > 62% CAGR 2001-03 ** +1.9% +5.5% Book industry +4.1% +4.3% +3.5% ÎAll studies tend to prove the high stability of the number of readers, the number of books read, etc . 3 * New Technologies of Information & Communication ; ** Except Italy : CAGR 2000-02 Book publishing is a growing and attractive business Why ? Î Durable demand thanks to the book’s following features : z The key to access reading and, as such, all formats of information, entertainment and culture. z Its “symbolic” place in almost all cultures : children are exposed to books from birth to the age of 16. z The “modernity” of its usage : light, mobile, compact, easy to use anywhere at any time. Î Durable growth thanks to : z The book’s resistance to piracy. Digital formats haven’t proven to add much value to books. z The opportunity for publishers to add digital contents to books in Education, Reference, etc. For instance in the UK : +18% CAGR 2001-03 in educational e-supplements / media z Governments’ and families’ worldwide focus on Education and along-the-life training. 4 Book publishing is a growing and attractive business Book publishing is a highly segmented market with diversified business models (1/2) Trade Education Prof./ Scient. / 63% 24% Techn. 13% Reference & Literature Illustrated books «K-12» College / University Fiction - Non Fiction Partworks Primary / Secondary Partworks Fr. : +2.9% Fr. : +6.5% Fr. : +23% Fr. : -4.9% Fr. : +3% CAGR UK : +3.9% UK : +4.9% UK : +2% UK * : -1% UK ** : +5.7% 2001-03 Sp. : -2.4% Sp. : -2.1% Sp. : +8% Sp. : +11.5% Sp. : +3.5% •International •Local •Both local and international •Marketing- •Publicly funded •Creation-oriented oriented •Digital •Reduced investments •High investments •High investments 5 * UK : Secondary ; ** UK : CAGR 2000-03 Book publishing is a growing and attractive business Book publishing is a highly segmented market with diversified growth rates (2/2) ÎIn most countries, behind the overall market growth, the various segments show highly different trends z Zoom on the French book market : CAGR 1998-2003 : +2,8% CAGR 1998-2003 Education Dictionaries 10,0% 9,9% 6,9% 7,5% Children’s books 5,6% 5,0% 4,0% 4,2% Literature 2,9% 2,8% 1,4% Art books 0,0% Encyclopaedias (door to door) -1,1% -5,0% Partworks Practical / Travel guides -10,0% STM / Human Sciences Other -15,0% Total market -20,0% -21,8% -25,0% ÎResulting in the strategic need to be involved in different segments and countries to capture growth. 6 How does Hachette Livre capture growth and performance ? 1992-95 : recovery 1996-2003 : growth & internationalisation & strategic repositioning Continued growth of the publishing External growth both in France and abroad, together with segments in France has started to offset investments in Partworks, has fostered the internationalisation the decline in door-to-door sales. process. % Intern. in total 14% 35% turnover : 1 000 950 959 200 Publishing 900 830 846 180 822 193 800 768 160 2 714 9 699 9 1 669 700 140 n 638 i Total 0 0 m 1 € 600 120 143 s i n i s r a e 500 100 b v n o o n r x u 400 80 e T d n I 300 […] 60 200 Door-to- 40 door 100 8 20 0 0 1992 1995 1996 1997 1998 1999 2000 2001 2002 2003 Hatier Orion Octopus 7 How does Hachette Livre capture growth and performance ? This strategy has allowed Hachette Livre to show significant improvement in profitability… PROFITABILITY GROWTH Turnover (in M€) Op. profit (in €m) Op. margin 11,1% 12,0% 120 9,6% 10,0% 100 950 959 7,7% 107 7,0% 8,0% 846 80 6,0% 6,3% 91 830 5,8% 822 6,0% 699 768 60 65 58 4,0% 40 46 52 41 20 2,0% 0 0,0% 1997 1998 1999 2000 2001 2002 2003 1997 1998 1999 2000 2001 2002 2003 Data as of Dec. 31, 2003 (real, no pro forma data) 8 How does Hachette Livre capture growth and performance ? … with very high cash conversion rates CASH FLOW % CASH FLOW / OP. PROFIT Free cash flow * (in M€) 102 120% 95% 100% 90% 91% 81% 80% 76% 74% 67 66% 60% 53 40% 42 37 39 38 20% 0% 1997 1998 1999 2000 2001 2002 2003 1997 1998 1999 2000 2001 2002 2003 Data as of Dec. 31, 2003 (real, no pro forma data) * excluding dividends paid to Lagardère Groupe 9 Growth drivers of Hachette Livre business portfolio Partworks : one of the key growth drivers in the last years ÎKey success factors of the business model include : z Marketing-driven selection of collectible topics and heavy upfront launching investments in order to generate long term customer loyalty z Careful cost management to maximise margins on follow-up issues z Ability to replicate proven success on successive foreign markets ÎRapid growth of the partworks business : z 40 launches per year z Continued internationalisation (Spain, Latin America, UK, Italy, Japan) through organic growth 2003 Italy Espagne France Japon UK HL position : #3 #3 #2 #4 CAGR 2001-03 market +4% +8% +23% +16% +2% CAGR 2001-03 Hachette Livre +49% +24% +21% n/a 8% 10 Growth drivers of Hachette Livre business portfolio Literature : Fiction / Non-fiction (France) The business model is based on : Î The combination of z Innovative small first edition imprints (Grasset, Fayard, Stock, Calmann-Lévy, Lattès etc.) Publishing a great number of low-risk titles and enjoying an overall stable profitability z And a highly powerful and profitable paperback imprint (Livre de Poche) Supplied with backlist titles from the Group’s imprints as well as from external publishers Market leader delivering recurring profits, Î Feeding our distribution operations with large volumes and, by doing so, increasing their profitability, Î Boosted from time to time by bestsellers such as The Da Vinci code. Hardbacks Paperbacks # new titles (approx) : 950 1100 % frontlist in turnover (approx) : > 95% > 55% Hachette Livre position : #2 #1 2003 2004 2003 2004 Market share : 14.9% 18.1% 32.4% 30.1% 11 Growth drivers of Hachette Livre business portfolio Education : the company’s highly profitable core business (France) Î High entry barriers due to the important investment required to gain customer access. Î High priority in long term public investment, worldwide Î A cyclical market subject to governmental policies z 2002-04 : entry into a challenging period for French educational publishers related to the slower-paced curriculum reforms and their reduced impact. z Partial reform in 2005 in K 6-9 (secondary schools) in Science. Î Despite the poorly funded educational environment, Hachette Livre has been able to gain market share in 2004 based on its strengths : z Quality of publishing teams z Strong backlist z Promotion and organisation efforts School textbooks Supplementals # new titles (2004) : 750 357 % frontlist in turnover (2004) : > 25% 30% HL position : #1 #1 Market share (2003) : 48.0% 47.5% % growth Market average -7% +2.8% 2003 / 02 : Hachette Livre -4% +3% 12 Growth drivers of Hachette Livre business portfolio Illustrated books (France) Î Cover the whole range of illustrated books from « useful » to « entertaining » z practical guides and how-to books, travel guides, art books, cartoons Î As well as Children’s books : z Well-known series based on Hachette Livre’s rich historical back-list and key characters (Astérix, Franklin, Babar, Disney characters…), complemented by children’s reference and non fiction titles Î All enjoying strong, historical brands Î And benefiting from z Highly creative teams z Efficient marketing z Powerful salesforces Practical books Travel guides Children’s Children’s « Coffee table » hardbacks paperbacks and Art Books # new titles : 320 185 480 185 165 % frontlist in turnover : > 40% 65% > 35% 30% 80% HL position : #1 #1 #1 #1 #2 Market share : 2003 2004 2003 2004 2003 2004 2003 2004 26.7% 28.4% 39.0% 38.9% 18.9% 18.7% 28.6% 29.5% n/a % growth Market average +3.5% -1.9% +7.2% +1.8% n/a 2004 / 03 : Hachette Livre +5.8% +4.5% +9.1% +8.7% +10.3% 13 Growth drivers of Hachette Livre business portfolio Distribution (France) [Maurepas] Î The Hachette Livre distribution is a state of the art warehouse and information system, servicing all our Trade publishing divisions. Î Given the high volumes provided by the Group, this fixed cost-based division is significantly profitable. Î Thanks to its well-recognised performance, Hachette Distribution supplies the main independent French publishers (non exhaustively: Albin Michel, Glénat, First etc.).