General Statement by Company Management on the Economic Situation

Overall, Bertelsmann’s businesses showed a solid performance in financial year 2014. Bertelsmann made significant progress in the strategic transformation of the Group into one with a faster-growing, more digital and more international portfolio. As well as closing structurally declining businesses, the Group focused on developing new businesses that offer high growth potential.

In the reporting period, Group revenues rose 3.1 percent to €16.7 billion (previous year: €16.2 billion). The expected strong increase in revenues at Penguin Random House was achieved as a result of the first-time inclusion in the Group financial statements for the full year (outlook in 2013 Annual Report: significantly above previous year); there was also strong bestseller performance. By contrast, a weak market development in France and the continued scaling back of a number of structurally declining businesses, particularly in the printing segment, had a negative impact on Group revenues. In view of the strategic disposals, the overall moderate revenue growth was below expectations (outlook in 2013 Annual Report: strong increase). Operating EBITDA of €2,374 million (previous year: €2,311 million) was moderately above the previous year (outlook in 2013 Annual Report: stable development). As expected, operating EBIT reached a stable level of €1,769 million, compared to €1,763 million (outlook in 2013 Annual Report: stable to slightly above previous year; adjusted outlook in 2014 Interim Report: stable to slightly below previous year). At €188 million, the BVA used for Group management was well below the previous year’s figure of €283 million (outlook in 2013 Annual Report: strongly declining BVA). The expected development reflects the transaction-based strong increase in invested capital.

In financial year 2014, the Executive Board continued to focus primarily on the transformation of the Group, based on the four strategic priorities: strengthening core businesses, driving forward the digital transformation, developing growth platforms and expanding into growth regions. Strengthening the core businesses resulted in the establishment of new TV channels by RTL Group and the acquisition of the Santillana trade publishing companies as well as the full takeover of Gruner + Jahr. In addition, the company sold off structurally declining businesses such as the US print business Brown Printing, the Italian print businesses of Be Printers and the club businesses in Spain, the Czech Republic and Slovakia. Furthermore, a decision was made to close the German-language club and direct-marketing businesses by the end of 2015. The Group pushed ahead with the digital transformation on all levels, achieving this through expanding existing nonlinear TV offerings at RTL Group and through acquisitions such as SpotXchange and StyleHaul. Penguin Random House reinforced its leading market position in the e-books segment with a catalog that now numbers over 100,000 titles and Gruner + Jahr expanded its range of digital content and digital advertising marketing. Arvato grew its services for companies in the IT/high-tech sector and its e-commerce services. Bertelsmann’s growth platforms were strengthened in particular through the acquisition of the US online education provider Relias Learning. Furthermore, the RTL Group subsidiary Fremantle Media acquired the majority of the TV production company 495 Productions and Arvato acquired the e-commerce service provider Netrada, while BMG made various acquisitions, including the music publishers Talpa and Union Square as well as the rights catalogs of Montana and Hal David. In the growth regions, the Bertelsmann Asia Investments fund expanded its shareholdings in leading digital companies in China. In India, Bertelsmann acquired shares in the e-commerce platform Pepperfry and the education provider iNurture. In Brazil, Bertelsmann established an education technology fund in conjunction with the Brazilian investment company Bozano Investimentos.

Bertelsmann’s net assets and financial position are very solid despite the high level of investment activity. As of December 31, 2014, the cash and cash equivalents reported at €1.3 billion represent an adequate liquidity situation. The ratings agencies Moody’s and S&P rated Bertelsmann as “Baa1” and “BBB+” respectively, with a stable outlook. Overall, Bertelsmann ended financial year 2014 with a satisfactory performance and has a solid financial basis.