Dear Readers,
Dear Friends of Bertelsmann,

Dr. Thomas Rabe
Chairman and CEO of Bertelsmann

Bertelsmann has had an eventful, successful year. In Penguin Random House, we have created the world’s largest trade book publisher. With BMG, we are again among the world’s leading music companies. With the acquisition of Gothia, we made the largest purchase in the history of our services subsidiary Arvato. Also, we carried out Germany’s largest IPO in 2013. These steps, along with many others, will contribute to Bertelsmann’s continued development aligned with our growth strategy.

In addition to these transactions, we look back on a year of positive business performance. In 2013 Bertelsmann increased its revenues by nearly two percent, to €16.4 billion. Our portfolio measures were key contributors to this. Positive impetus was also provided by RTL Group’s German and Dutch television businesses, as well as Arvato’s services for companies in the IT and high-tech industry.

Nevertheless, our revenues were negatively affected by several factors. They include the overall weak European advertising markets; the normalization of the book business after the exceptional year of bestsellers in 2012; the deliberate eschewing of unprofitable revenue growth at Arvato; and lastly the adjustments at Be Printers and our Club and Direct Marketing activities. Operating EBITDAEarnings before interest, taxes, depreciation, amortization and special items. developed well, increasing by more than €100 million to €2.31 billion. Positive developments at RTL Group and Arvato more than compensated for shrinking earnings in structurally declining businesses and start-up investments in growth areas. Operating EBITEarnings before interest, taxes and special items., too, was up year on year at €1.75 billion. Our return on sales of 10.7 percent once again confirmed Bertelsmann’s high level of profitability.

We significantly increased our Group net income, exceeding our expectations; it surged by more than 40 percent to €870 million, its highest level in seven years.

This clearly demonstrates that we are implementing the transformation of Bertelsmann from a position of strength. It lays the foundations for establishing Bertelsmann as a faster-growing, more digital and more international company in the years ahead. To achieve this goal, we have set four strategic priorities. I am delighted to report that we made significant progress in each of them in 2013:

The merger of our Random House publishing group with Penguin, a transaction we completed on July 1, 2013, best documents the strengthening of our core. Penguin Random House is not only the world’s largest trade book publisher, selling 700 million books annually, but thanks to its presence on five continents, it is the first and only truly global trade book publishing group. Penguin Random House is home to some of the world’s most renowned authors, including more than 70 Nobel Prize laureates alone.

RTL Group continued to expand its families of channels. Mediengruppe RTL Deutschland secured the broadcasting rights to the German national soccer team’s Euro 2016 and World Cup 2018 qualifying matches. Two of our divisions have reorganized: Under the leadership of its new Executive Board team, Gruner + Jahr carried out a strategic realignment into eight defined Communities of Interest and a clear commitment to journalistic content. Arvato reorganized itself into seven Solution Groups both to enhance the coordination between countries and to strengthen key account management for its most important customers.

We also significantly advanced the digital transformation of our businesses last year. In 2013, RTL Group offerings collectively generated 16.8 billion online video views. Thanks in part to a strategic collaboration with the Canadian multichannel network BroadbandTV, last year RTL Group became one of the three biggest players on YouTube – not counting music video services. Penguin Random House expanded its e-book inventory to more than 77,000 titles. As part of its strategic realignment, Gruner + Jahr enlarged its portfolio of e-magazines, mobile services and apps: The Chefkoch community recorded almost 13.4 million individual users per month, and the corresponding app has been downloaded nearly four million times. Moreover, Arvato achieved further growth last year as a service provider for leading companies from the IT, high-tech and e-commerce sectors.

We also attained an important milestone in the expansion of our growth platforms. The acquisition of full ownership of BMG has made music an important part of Bertelsmann again. Just five years after exiting the traditional recorded music business, we have once again become a key player in the music industry: BMG is number four worldwide in the highly competitive music rights market. Our strength is demonstrated not only by the over one million song rights that BMG now manages, but also by the signings we celebrated last year. I am delighted that Mick Jagger and Keith Richards of the Rolling Stones, and artists such as Robbie Williams and the Backstreet Boys, among many others, chose to sign with BMG in 2013.

Another growth platform we systematically strengthened last year is the financial services sector. Following the takeover of Gothia Financial Group (Arvato’s biggest acquisition ever), Arvato is now one of the top three European providers of financial services, with customers in 21 countries.

In 2013, we not only expanded our growth platforms, but also our presence in key growth regions. Together with CBS, RTL Group expanded into Southeast Asia for the first time. In the book business, we significantly improved our position in our key growth markets – China, India and South America – through the merger of Penguin and Random House. In China, Arvato continued the profitable growth of its services business. Furthermore, our investment fund Bertelsmann Asia Investments expanded its portfolio and recorded a very positive performance, evidenced, for instance, by the sale of two investments worth US$71 million during the last two years.

All these measures contribute to the lasting improvement of Bertelsmann’s growth profile, to which we will continue to devote all our efforts in the future. In the process we not only benefit from Bertelsmann’s operational strength, but also from our financial starting position. Thanks to the successful public offering of 25.5 million RTL Group shares we have a further €1.5 billion available – funds we will invest in Bertelsmann’s transformation. At the same time, we are working to place our portfolio on a broader revenue basis. One line of business that we want to establish long term as a third mainstay of revenues, alongside media content and services, is education. Our University Ventures Fund has built an attractive investment portfolio in this area. Given our experience to date, we see numerous areas where we can significantly intensify our involvement in this fast-growing segment – with a specific focus on services for the education sector, online degrees in higher education and medical education.

With this in mind, we will continue our evolution into a higher-growth media, services and, in the future, education company. The most important driving force in this process will be the innovation and resourcefulness of our staff and creative professionals. They form the basis of our success and are the reason that Bertelsmann is already the media company with the largest and most diverse creative output in the world.

We want to continue to make this creativity a tangible experience for you as cherished friends of Bertelsmann. I would be very pleased if you choose to continue to accompany us on this journey together!

Yours sincerely,

Thomas Rabe