Bertelsmann Braced For Challenges

CEO Hartmut Ostrowski believes Bertelsmann is in a better position to deal with the economic downturn since hiving off its recorded music business to Sony and its publishing to Universal.

“We disposed of shrinking parts of the business and are in a much better strategic position today than just 12 months ago,” he said, as Bertelsmann announced 2008 operating revenues and profits are roughly on par with the previous year.

Revenues dropped by less than 1 percent to euro 16.1 billion ($21.8 billion) and earnings before interest, taxes and special items (EBIT) dropped 8.7 percent to euro 1.57 billion ($2.13 billion).

Bertelsmann says the profit drop reflects the economic downturn during the second half of the year, but returns on sales are still healthy at 9.7 percent and Ostrowski is happy with the new business model.

Group net income amounted to euro 270 million, down from euro 405 million, but that’s largely because of restructuring measures taken toward the end of the business year as a precaution for 2009 and write-downs of its British TV business and at Direct Group.

Apart from selling its 50 percent stake in the music joint venture Sony BMG and parts of the direct-to-customer operations bundled in Direct Group, Bertelsmann launched numerous promising businesses, including the new music rights arm BMG Rights Management, new rights trader UFA Sports and the “Deutschland Card” customer loyalty program.

Bertelsmann also invested in new digital media and services and in promising businesses in the Asian territories through two venture capital funds.

“Our focus is currently on safeguarding our businesses, our high profitability and our liquidity,” Ostrowski said. “This primarily means cost discipline and restraint in our investments, but also an increased focus on gaining market share and entrepreneurial innovations.”

For 2009, Bertelsmann expects that the global economic crisis will put a strain on the economy and on the company’s business prospects.

Overall, Bertelsmann expects revenues and operating profit to decline. The degree of year-on-year change will depend on the intensity and duration of the economic downturn.