Anticipated Overall Economic Development
Bertelsmann anticipates that economic conditions will develop as follows in 2015. In the forecast period, global growth should gradually accelerate. According to the Institute for the World Economy at the University of Kiel (IfW), global gross domestic product (GDP) will grow by 3.7 percent in real terms in 2015. Mainly, the overall continued expansive monetary policy and lower oil prices are helping to boost economic activity. The threshold countries will benefit from the strong demand in advanced economies, although structural problems will prevent any rapid return to high expansion rates.
The IfW estimates real economic growth of 1.1 percent in the euro zone in 2015. The development of individual EU member states will remain mixed. The IfW expects GDP for Germany to grow by 1.7 percent in real terms. It expects the growth rate in France to be 0.7 percent in real terms. In the UK, the positive growth trend is expected to continue in 2015; the IfW expects the economy to grow by 2.9 percent in real terms. For the United States, GDP is expected to rise by 3.2 percent in real terms in 2015 as a result of the continuing growth dynamic.
Anticipated Development in Relevant Markets
The worldwide media industry is primarily influenced by global economic developments and the resulting growth dynamic. The continued trend toward digitization of content and distribution channels, changes in media usage and the increasing influence of threshold countries will continue to present risks and opportunities in the years to come. Through the intended transformation of the Group portfolio in line with the four strategic priorities, Bertelsmann expects to benefit to an increasing extent from the resulting opportunities. Through its businesses, Bertelsmann operates in a variety of different markets and regions whose developments are subject to a range of factors and which do not respond in a linear fashion to overall economic tendencies. The following takes into account only those markets and regions that are large enough to be relevant for forecasting purposes and whose expected development can be appropriately aggregated and evaluated or which are strategically important from a Group perspective.
For 2015, slight growth is generally expected in the European TV advertising markets with the exception of France. The English-, German- and Spanish-language book markets are expected to show largely stable development. In the magazine business, the advertising and circulation markets in Germany and France are expected to continue to decline in 2015. In 2015, the services markets are expected to achieve growth similar to 2014 and the storage media markets are expected to continue to decline at a rate similar to the previous year. The European print markets for magazines, catalogs and promotional materials and the print market for books in the United States are expected to decline. In 2015, the global music-publishing market is forecast to show continued slight growth. The recorded-music market is expected to stabilize. For the US education markets, continuing significant growth in expected in the e-learning, health and human sciences and education-services segments.
The global economy continues to gradually improve. However, economic prospects are still dogged by certain risks. The following expectations are therefore based on the assumption that the recovery of the overall economic situation will continue and that most of the forecasted market developments and the economic predictions of the research institutions will be realized.
For financial year 2015, Bertelsmann anticipates that stable business development will be driven by the slightly positive market expectations for the European TV advertising markets, with the exception of France, by stable book markets and by continuously growing service markets. The growth stimuli created through strategic portfolio expansions will have a positive impact on Bertelsmann’s growth profile over the next few years. The accelerated scaling back of structurally declining businesses – in particular, print, replication, clubs and direct marketing – will also help to mitigate their negative impact.
In addition to the assumed market developments, the predicted economic developments in the geographic core markets of Western Europe and the United States are the basis of the expected business development. With revenue and earnings share within the euro zone still expected to remain at around 75 percent, the extent of growth is above all based on the forecasted real and nominal economic development in this economic zone. The IfW therefore assumes that GDP in the euro zone will increase by 2.5 percent in nominal terms and by 1.2 percent in real terms for 2015. The OECD predicts that GDP in the euro zone will increase by 2.0 percent in nominal terms and by 1.1 percent in real terms for 2015. In view of these economic expectations and the dampening effects on growth from the continued scaling back of structurally declining businesses, Bertelsmann expects stable development of Group revenues for 2015. Operating EBITDA is expected to increase slightly in financial year 2015, also in view of the profit-improvement measures and the lower adverse effects from structurally declining businesses. As a result of the full-year inclusion of the acquisitions made in the reporting period, Bertelsmann anticipates that invested capital will increase again in financial year 2015. As a result of the growth profile of the acquired businesses, compensating effects from earnings contributions are not expected to be felt for some time. Consequently, a low overall return on investment and a strong fall in BVA are expected.
At present, the expected performance of any individual unit of key significance for the Bertelsmann Group is not expected to deviate significantly from that of the Group.
Depending on how the economy develops, Bertelsmann does not currently anticipate interest-rate changes to have any material impact on the average financing costs of medium-to long-term financing. The liquidity situation in the forecast period is expected to be sufficient.
These forecasts are based on Bertelsmann’s current business strategy as outlined in the “Corporate Profile” section. In general, the forecasts reflect careful consideration of risks and opportunities and are based on operational planning and the medium-term outlook for the corporate divisions. All statements concerning potential economic and business developments represent opinions advanced on the basis of the information that is currently available. Should underlying suppositions fail to apply and/or further risks arise, actual results may differ from those expected. Accordingly, no assurances can be provided concerning the accuracy of such statements.