Bertelsmann Q3 lifts sales, profits, debt

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COLOGNE, Germany -- A resurgent European advertising market has lifted all boats at German media giant Bertelsmann, which increased sales and profits in the third quarter, but the company's costly share buyback has lifted debt to record levels as well.

Revenue at Bertelsmann inched up 2.6% to €4.4 billion ($5.6 billion) in the third quarter while pre-tax profit (EBIT) got a 6.8% boost to €281 million ($360 million).

A rebound in European advertising markets, particularly in Germany, has helped Bertelsmann's bottom line. Sales in the first nine months of this year were €13.5 billion ($17.3 billion), a 10.3% jump on the same period in 2005.

Net profit, however, is down sharply, from ?566 million in the first nine months of last year to just €362 million ($463 million) so far this year. Bertelsmann put the blame on several one-off items. These include the $60 million paid to Universal Music Group to settle a suit connected to Bertelsmann's support of (then illegal) file-sharing site Napster.

Another mark on Bertelsmann's balance sheet was music joint venture Sony BMG, which continues to suffer from a downturn in the world music market.

But the company's biggest one-off expense was the €4.5 billion ($5.8 billion) buyback of the 25.1% stake in Bertelsmann held by Groupe Bruxelles Lambert (GBL) in July. Bertelsmann did the deal to prevent GBL from taking the stake public. To avoid that, the German group was willing to violate its strict low-debt policy. The GBL buyback more than doubled Bertelsmann's economic debt from €3.9 billion to €8.9 billion ($11.4 billion).

"This represents the upper limit," said Bertelsmann chief financial officer Thomas Rabe. "By the end of the year, our economic debt will be much lower due to funds generated from operating activities and the sale of BMG Music Publishing."

In September, Bertelsmann signed a deal to sell BMG Music Publishing, which holds rights to songs from artists such as Coldplay, Christina Aguilera and Robbie Williams, to Vivendi and Universal Music Group for $2.1 billion. (HR 9/7).

Based on current performance, Rabe said the company expects a 10% boost in operating revenue and a "significant improved net income" for the full year.
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