Bertelsmann profits rise 44% despite loss at BMG

Bertelsmann, Europe's biggest media group, yesterday revealed that its BMG music operation had crashed to a loss as underlying profits fell on the back of dwindling music and advertising revenues.

Operating profit dipped 4 per cent to 1.2bn euros (£750m). However, asset sales offset the 1.4bn euros for internet losses and one-time charges, including the restructuring of BMG. The group reported a 44 per cent rise in pre-tax profit to 968m euros for the year to June. The company, which controls RTL, Europe's biggest broadcaster and Random House, the world's largest publisher, saw turnover jump 21 per cent to 20bn euros.

Thomas Middelhoff, chairman and chief executive, said: "The figures make it clear that we're achieving strong growth with a strong balance sheet. We think that Bertelsmann is well positioned for difficult economic times."

BMG, reflecting the turmoil in the global music business, made a loss of 5m euros compared with profits of 224m euros a year earlier. Bertelsmann added a further 288m euro charge to restructure the division, which is the smallest player of the five music majors.

Mr Middelhoff, while critical of BMG's performance ruled out a disposal of the unit. "It was absolutely unsatisfactory," he said, commenting on the loss. "We changed management and found that there were structural problems. But BMG will always be a core business for Bertelsmann."

He also voiced concern about advertising, which contributed 4bn euros of turnover to Bertelsmann last year. "As a result of that we are more vulnerable than others," Mr Middelhoff said.

In other operations, G+J, the company's magazine operation, saw operating profit, hurt by disposals including the sale of its UK business last autumn, fall to 292m euros from 385m.

Random House, helped by a string of bestsellers such as The Brethren, by John Grisham, recorded a near two-fold rise in profits to 180m euros.

Though Bertelsmann has been affected by the downturn in advertising, its private ownership structure, save for the listed RTL, has left the group well positioned for acquisitions. This was bolstered by the $6.8bn sale early last year, at the height of the internet boom, of its 50 per cent stake in AOL Europe to the online giant when it acquired Time Warner.

Bertelsmann plans to float in the next few years through an offering of up to 24.9 per cent of the company, currently owned by Groupe Brussels Lambert. The stock will be listed in Frankfurt and at least one other financial centre, most likely New York or London.

Mr Middelhoff said that the downturn in media sector valuations could see Bertelsmann become more acquisitive. "We can take strategic action not constrained by debts or the stock price. We want to further expand our content."