#1A. UDERZO Picts Lagardère Illustrated by Didier CONRAD PUBLISHING Hhachette LIVRE PRESENTATION INVESTOR DAY LAGARDERE regarde calling AN MADRID C'EST LE MÉTIER E Pierre Haski SANUR Jean-Eder Haller LE PREMIER OM DORT REVELLE CAUTRE Le règne des femmes CHRISTIAN JACO L'AFFAIRE TOUTANKHAMON ERIK ZRAELEWICZ L'arrogance chinoise CRASSIT ERIK ERACLEWICZ Quand la Chine change le monde Le capitalisme zinzin Ce monde qui nous attend Ge G Paris - 28 May 2014 DONNA TAK BERNARD KOUCHNER CE QU Assac Maine Horson CARNETS D'UN JARDIN GLEÇONS DE CONDUITE GASPARD KITANO KITANO Farhad var Quand Al-Qaida parle ELIN KAZAN Une vie A l'amour en France MARIN KARMITE BANDE A PART GRACEY#2INVESTOR DAY-hachette AGENDA LIVRE PRESENTATION Hachette Livre since 2010 - Hachette Livre today - 2003-2013 highlights Hachette Livre's successful digital transformation - Market environment: a new deal - - Actions put in place and results today Opportunities Three year outlook - - - Pursue digital transformation Consolidate market position Invest in emerging markets Conclusion Lagardère PUBLISHING 2#3INVESTOR DAY H hachette - LIVRE PRESENTATION HACHETTE LIVRE IS THE WORLD'S #3 CONSUMER BOOK PUBLISHER, A LEADER IN CORE MARKETS Lagardère PUBLISHING Top 3 Consumer book publishers worldwide Based on 2013 pro-forma turnover (Єm) (Consumer: Trade & Education including Higher Education) 5,085 Ranking in core markets Based on 2013 market data and results Worldwide #3 PEARSON * 3,259 ** PENGUIN RANDOM HOUSE #1 2,066 #2 #3 [] hachette LIVRE #4 #2 Penguin Random House *Pearson excludes Penguin revenues **Internal estimate including 100% of Penguin revenues Based on 2013 average exchange rates. Revenues from STM, professional markets and other activities than book publishing have been excluded when it could be isolated Sources: annual reports, internal estimates, Ipsos, Nielsen Bookscan 3#4INVESTOR DAY H hachette - LIVRE PRESENTATION IN FRANCE, ITS HOME TURF, HACHETTE LIVRE IS THE #1 PUBLISHING PLAYER France** CONTRIBUTION TO 2013 GLOBAL SALES* (€ 2,066m) 37% 3 BUSINESSES IN FRANCE 2013 ranking and market Focus on France TRADE EDUCATION 20.5% # 1 Lagardère PUBLISHING SPLIT OF 2013 SALES BY BUSINESS Distribution 25% 50% 25% Trade Education DISTRIBUTION 45% 33% *** # 1 # 1 Primary ÉDUCATION Hhachette Hatier Hhachette LIVRE DISTRIBUTION share in value Main segments of presence and examples of imprints Fiction & Non Fiction Stock JC Lattès calmann-lévy fayard Grasset 00 ⚫ Illustrated & Children ⚫ MARABOUT • Secondary MFOUCHER didier Owned imprints Third-party clients (40%) 16 DUNOD Academic & Professional Albin Michel DELCOURT DALLOZ ARMAND COLIN Key business factors LES EDITIONS ALBERT Pika chêne hachette RENÉ EDITION Reference LAROUSSE High level of production From "boutique" to mass market Exceptional brands Outstanding performances in 2013 (Fiction bestsellers, new album of Asterix, Violetta) 75% backlist Dependant on curriculum change (none in 2013/2015) High margins associated with high market shares *Sales by country of origin ** Including other French-speaking countries ***Distribution in Trade (internal estimates for print market) Sources: Ipsos (physical sales only), Education group of Syndicat National de l'Edition, internal estimates Working capital negative Extremely resilient 4#5INVESTOR DAY H hachette - LIVRE PRESENTATION HACHETTE BOOK GROUP IS THE #4 PLAYER IN THE US TRADE MARKET USA CONTRIBUTION TO 2013 GLOBAL SALES* (€ 2,066m) 23% 2 BUSINESSES 2013 ranking and market share in volume Main segments of presence and examples of imprints Key business factors TRADE 5.8% ** # 4 L B GRAND CENTRAL LITTLE, BROWN AND COMPANY PUBLISHING Faith Words orbit H L B Lagardère PUBLISHING SPLIT OF 2013 SALES BY BUSINESS Distribution 4% Trade 96% DISTRIBUTION ~8% LITTLE, BROWN AND COMPANY BOOKS FOR YOUNG READERS Owned imprints Third-party clients: -40% of the activity hachette AUDIO Yen Press™ Brilliant Frontlist Publisher, # 1 in the market, experiencing good performance in 2013 206 print and 84 ebook NYT bestsellers (52 titles in #1 positions) • All authors have agents • Stronger in Adult Fiction than in other segments Acquisition of Hyperion in 2013 to reinforce the Non Fiction list Working capital negative ⚫ Achieved digital transformation Aggressive growth strategy in 3rd-party business *Sales by country of origin **Including sales of some distribution clients. Post-acquisition sales for Hyperion included. Physical sales only Sources: Nielsen Bookscan, internal estimates сл 5#6INVESTOR DAY H hachette - LIVRE PRESENTATION HACHETTE UK IS A LEADING PLAYER IN THE UK AND COMMONWEALTH COUNTRIES Lagardère PUBLISHING UK SPLIT OF 2013 SALES BY BUSINESS 5% Distribution Education 8% CONTRIBUTION TO 2013 GLOBAL SALES* 21% (€ 2,066m) Including Ireland, India and Australia 87% Trade 3 BUSINESSES IN THE UK 2013 ranking and market share in value Focus on the UK TRADE EDUCATION 12.8% #2 #4 Main segments of presence and examples of imprints Fiction & Non Fiction headline little, brown publishing group Illustrated ⚫ Children HOG BOOK GROUP HODDER & STOUGHTON ORION PUBLISHING GROUP hachette CHILDREN'S BOOKS О OCTORES TUBLILBING GROUT HODDER EDUCATION DYNAMIC LEARNING Create outstanding lessons GALORE- PARK Secondary Schools Market: #3 on this segment Key business factors All authors have agents Most unregulated market High retail concentration Outstanding performances in 2013: 112 Times bestsellers Need for size Extremely concentrated More digital than France but only~10% Strong performance in 2013 (curriculum change in Scotland) DISTRIBUTION O 1 B S -23-24% Owned imprints # 1 Bookpoint • Third-party clients: 41% of activity *Sales by country of origin Sources: Nielsen Bookscan (physical sales only); Education group of Publisher's Association; The Publishers Association; internal estimates Working capital negative Less profitable than France and US 60#7INVESTOR DAY H hachette - LIVRE PRESENTATION HACHETTE LIVRE ESPAÑA IS A LEADING PLAYER IN SPAIN AND LATIN AMERICA Spain & Latin America CONTRIBUTION TO 2013 GLOBAL SALES* (€ 2,066m) 8% Lagardère PUBLISHING SPLIT OF 2013 SALES BY BUSINESS 4% Distribution Trade 26% 70% Education TRADE (SPAIN) DISTRIBUTION (SPAIN) LATIN AMERICA 4 BUSINESSES EDUCATION (SPAIN) 2013 ranking 20.3% and market share # 1 # 4 Main segments of presence and examples of imprints Key business factors Mexico Argentina ANAYA BARCANOVA EDITORIAL B Bruño algaida EDITORE # 2 in Adult Non Fiction (market share of 7.1%) #5 in Adult Fiction (market share of 2.4%) # 4 in Juvenile segment (8.5%) CGA COMERCIAL GRUPO ANAYA Mainly for owned imprints Educational books PATRIA AIQUE Reference LAROUSSE Several languages and curricula Heavily funded by public Reform in 2014 Very concentrated • Hurt by very difficult • environment Opportunities to come? • Not an established business in Spain *Sales by country of origin. Sources: Internal estimates for education. Nielsen Bookscan for Trade market shares (print sales, in volume) 7#8INVESTOR DAY H hachette - PRESENTATION LIVRE HACHETTE LIVRE OPERATES A PARTWORKS BUSINESS WITH A STRONG PRESENCE WORLDWIDE Lagardère PUBLISHING CONTRIBUTION TO 2013 GLOBAL SALES* (€ 2,066m) hachette H hachette COLLECTIONS JAPAN FASCICOLI アシェット・コレクションズ・ジャパン株式会社 hachette COLLECTIONS 0 Canada Partworks 11% PARTWORKS LTD hachette hachette kolekcja SALVAT Editorial do Brazil H hachette H hachette коллекция коллексьон україна SALVAT Germany United Kingdom Ireland Netherlands Belgium Mexico France Spain Portugal AT A GLANCE Italy Malta 33 Countries 16 Languages Peru Brazil 157 Employees 69 Launches in 2013 Chile 177 Active collections South Africa around the world Argentina *Sales by country of origin Russia Switzerland Austria Hungary Greece Taiwan Romania Bulgaria Slovakia Poland Czech Republic Ukraine Belorussia Australia Japan Presence of Hachette Livre New Zealand 8#9INVESTOR DAY H hachette - LIVRE PRESENTATION HACHETTE COLLECTIONS IS THE #2 GLOBAL PLAYER IN PARTWORKS Lagardère PUBLISHING 2013 ranking and market share in value BUSINESS OVERVIEW 23%* # 2 - Partworks activity has been extending its international network year after year: compared to 2009, new countries became the main contributors of sales in 2013 61% of sales & 57% of EBIT ** 2009 0 0 Key business factors 2013 * 51% of sales & 69% of EBIT - Successes on all markets excluding Spain in 2013 - High R&D, marketing and promotional expenses - Need for very professional testing processes - Need for tight operational management Internal estimates based on sales in newsstands ** Spain, Portugal, and Latin America excluding Brazil 6#10INVESTOR DAY H hachette - LIVRE PRESENTATION HACHETTE LIVRE EXTENDED ITS REACH THROUGH BUSINESSES IN DEVELOPING COUNTRIES Overview Chachettephoenix 凤凰阿歇特 * hachette PUBLISHING GROUP أنطوان.A AZBOOKA-ATTICUS * * Joint venture with Phoenix Publishing Media Group 17 people Joint venture with Librairie Antoine established at the end of 2009 21 people Segments ⚫ International Fiction, Non Fiction/Practical, Children Lagardère PUBLISHING hachette INDIA Participation in Azbooka- Atticus Publishing Group since 2011 Launched in 2008 English language consumer book subsidiary 407 people in the in the # 2 # 3 Trade market • Trade: local and international Fiction & Non Fiction, Children, Practical, Reference ⚫ Education Local and international Fiction, Children, Non Fiction / Practical • Trade market Marketing and distributing books for HUK and HBG Fiction, Children's and Reference books as well as Non Fiction Key trends .91 titles in 2013 ⚫Fiction: D. Kennedy, J-C Grangé, D. Baldacci, acquisition of G. Musso ⚫ Non Fiction: I Am Malala, David Beckham illustrated biography, self-help, soft business, biographies Strong Children line, with « Disney Learning >> license and other Edutainment titles, and Children Fiction ⚫227 titles in 2013 • Growth of 2013 sales: +10% Fiction: Arab classics as well as very contemporary bestsellers (both Arab like Ahlam Mosteghanemi, and Western like J.K. Rowling, Harlan Coben) Disney license, Mr. Men & Little Miss license Practical titles (Méthode Dukan, cook books) · • 1,229 new titles in 2013 Growth of 2013 sales: +10% Fiction: development of foreign authors (JK Rowling, Jojo Moyes, Jo Nesbø), strong line of classics Children: strong authors (Enid Blyton, Astrid Lindgren), new Harry Potter edition for 2014 Development in new segments such as business books, coffee-table books ~35 adult books and 15 children's books published per year *Not consolidated 10#11INVESTOR DAY H - LIVRE Hhachette PRESENTATION HACHETTE LIVRE PUBLISHED 16,452 NEW TITLES IN 2013 Examples of 2013 bestsellers Trade Lagardère PUBLISHING Hervé Jourdan LE SANG DE LA TRAHISON PRIX DU QUAI DES ORFEVRES 2014 Literature PORIO CAMBATH Cuckoo's CALLING NICHOLAS SPARKS The Longest Rile Illustrated EL James Cinquante Lating fity ads m DAVID BALDACCI KING AND MAXWELL NUTELLA les 30 recettes culte nutella THE WORLD ATLAS OF WINE T EDIZION HUGH JOHNSON JANCIS ROBINSON Da Vincide INFERNO si King & Dave Myers THE HAIRY DIETERS DAN BROWN ج. ك . رولينغ Cuckoo's calling Yo soy Malala MALALA YOUSAFZA EAT FOR LIFE الشيف أنطوان ماكول الهنا ALMANACH VERMOT MISS PEREGRINES PECULIAR CHUDGEN 2014 MUG CAKES Education and References Children Astérix Asterix Pict's MIDDL Cap (CP Maths PAPELILLOS 5 DRAGON ontaton DAVID AND GOLIATH MALCOLM GLADWELL JAMES PATTERSON CROSS HEART ALEX FERGUSON MY AUTORIOGRAPHY FOOD Les meilleures recettes CRESSIDA COMED FOOD Nestle dessert Tartu Notter COMPRENDRE MATHEMATIQUES LAROUSSEI Partworks Poche 2014 Superhelden SNIDER-MAN 62000 definition 8000 Min innis Na GIRAFFES CAN'T DANCE Enjoy Workboo Ribambelle fet fele Mes outils pour écrire Germany Italy MINI-PATISSERIES ET GOURMANDISES SUCCES SALEES ANGRY BIRDS EXPAN NEWS Spring SCHOOL BUS OCR Computing GCSE K CD-ROM 1 IGCSE modern world Information and Communication Technology history Choux chies mini-madeleines HOME AR NEL Brazil France 世界の貨幣 Чудо-глобус Japan LANCPA XY монитые MHP 2 Religión Católica Passeport ANAYA Russia Construisez votre réseau ferroviaire en miniature! RESEAU FERROVIAIRE Russia France 11#12INVESTOR DAY-hachette AGENDA LIVRE PRESENTATION Hachette Livre since 2010 - Hachette Livre today - 2003-2013 highlights Hachette Livre's successful digital transformation - Market environment: a new deal - - Actions put in place and results today Opportunities Three year outlook - - - Pursue digital transformation Consolidate market position Invest in emerging markets Conclusion Lagardère PUBLISHING 12 12#13hachette INVESTOR DAY - H LIVRE LIVRE PRESENTATION THE GROWTH OF THE GROUP WAS FUELLED BY ACQUISITIONS AND INTERNATIONAL DEVELOPMENT France UK Lagardère PUBLISHING 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 LAROUSSE ARMAND COLIN DUNOD HodderHeadline Spain GRUPO ANAYA USA H Latin America AIQUE Argentina China Others hachette BOOK GROUP AUDIOLIB Pika EDITION ITI PIATKUS PATRIA Mexico 凤凰阿歇特 hachettephoenix (JV) hachette H hachette INDIA India (۷) أنطوان.A Lebanon АТТИКУС Russia (25%) GALORE PARK Quercus H 00000000 13#14INVESTOR DAY H hachette - LIVRE PRESENTATION HACHETTE LIVRE HAS POSTED STRONG GROWTH OVER THE PAST TEN YEARS Hachette Livre results 2003-2013 (in Єm) Lagardère PUBLISHING 959 1,419 Twilight 2,273 2,130 2,159 2,165 1,975 2,077 2,038 2,066 1,644 301 173 189 220 239 246 250 221 223 223 107 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Share of International sales* 35% 45% *Sales by country of destination 52% 62% 65% 67% 69% 68% 67% 67% 68% Revenues CAGR 03-13: +8% Increase in net sales in 2013 on like-for-like basis: +1.9% vs 2012 EBIT CAGR 03-13: +8% 14#15INVESTOR DAY H hachette - LIVRE PRESENTATION HACHETTE LIVRE HAS SUCCESSFULLY ASSEMBLED A PORTFOLIO OF BUSINESSES ACROSS 3 MAJOR LANGUAGES AND ALL MARKET SEGMENTS Lagardère PUBLISHING 2013 revenues: €2,066m Sales by activity Sales by geographic area* Spain & Latin America Reference 4% 0% Other Partworks Partworks 8% 11% 11% France and other French- 37% speaking Distribution 12% 42% countries UK/ANZ 21% *Sales by country of origin 23% USA 15% Illustrated & Children 16% Education Fiction and Non Fiction 15#162013 profitability in Trade INVESTOR DAY H hachette - LIVRE PRESENTATION HACHETTE LIVRE IS A BEST-IN-CLASS, VERY PROFITABLE AND CASH GENERATIVE GROUP Hachette Livre financing 2003-2013 (Єm) Lagardère PUBLISHING EBIT Cash Flow 323 301 284 260 247 239 246 217 216 220 189 173 126 107 277 250 228 239 221 223 216 223 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Year-end cash situation 320 -118 -17 -74 -16 -50 144 254 244 283 376 Simon & Schuster Hachette Livre Penguin Random House HarperCollins Bonnier Scholastic Children book & distribution Sources: Hachette Livre data; annual reports 13,1% 11,6% 11,6% 7,9% 6,4% 2,9% 2013 profitability in education Hachette Livre 15,7% Scholastic 13,3% Educational Technology & Services Classroom & Supplemental Materials Pearson Education 12,6% Santillana 11,2% Education 16#17INVESTOR DAY-hachette AGENDA LIVRE PRESENTATION Hachette Livre since 2010 - Hachette Livre today - 2003-2013 highlights Hachette Livre's successful digital transformation - - - Market environment: a new deal Actions put in place and results today Opportunities Three year outlook - - - Pursue digital transformation Consolidate market position Invest in emerging markets Conclusion Lagardère PUBLISHING 17#18INVESTOR DAY - H hachette LIVRE PRESENTATION THE DIGITAL TRADE MARKET GROWTH RATES DIFFER BY COUNTRY Lagardère Hachette Livre has been instrumental in the transformation of the industry in the USA PUBLISHING eBook market development per country (in % of Trade sales in value - publisher price) -UK -USA --France ■■■22%* 21% 22% 17% 16% 7% 8% 2% 2% ~1.5%* YO Y1 Y2 Y3 Y4 Y5 Y6 US 2007 UK 2009 FR 2011 Year 0 for eBook market ☐ Entry of Amazon in 2007 with a high-discount policy on ebook prices Business model converted to agency contract in 2009 after Apple's entry Very rapid growth in the USA in 2009-2013 fueled by retailer competition, installed basis of devices and depth of catalogs Even stronger growth in the UK which reached in 3 years the same penetration rate as the USA in 4 years France: digital market taking-off slowly US reaching a « plateau » and UK experiencing less important growth than in previous years as stated by initial 2013 market estimates Hachette Livre was the N° 2 Digital Publisher in the US market in 2013 * Estimates Sources: GfK, SNE, Bookstats, The Publishers Association, Hachette analysis 18#19INVESTOR DAY - H hachette LIVRE PRESENTATION THE PENETRATION OF DIGITAL ON PUBLISHING MARKETS IN THE USA AND THE UK HAS POSITIVE IMPACT Trade market evolution 2011-2013 (net publisher revenues, in $bn for the USA and £bn for the UK) 2011-2013 Print Digital CAGR +4% +3% 13.6 13.5 1.3 1.3 12.5 1.2 22% 22% 17% 16% 8% (21% 84% 78% 78% 92 % 83% 79% 2011 2012 2013E 2011 2012 2013 Lagardère PUBLISHING Financial impacts Once the investment phase is over, digital modifies the cost structure of a publisher (example: decrease of print volumes) The across all formats slightly better incremental profitability of ebooks offsets the loss of contribution to fixed costs (distribution, sales forces) resulting from decline of print volumes Cash flow improvement, lower upfront investments in working capital and shorter payment terms Sources: Bookstats (Trade market excluding religion), internal estimates, The Publishers Association (home sales only for print) 19#20INVESTOR DAY - H hachette PRESENTATION LIVRE PUBLISHERS ARE NOW DEALING WITH GIANT TECHNOLOGY PLAYERS WHO ENJOY CONSIDERABLE BARGAINING POWER E-retailers on the digital market are highly concentrated, with Amazon dominant Breakdown of Hachette Livre digital sales by e-retailers in 2013 Lagardère PUBLISHING 8% 13% Amazon Barnes & Noble ■Apple 19% 60% Others (Kobo, Google, Sony,...) 5% 5% 12% Amazon Apple Kobo Others 78% (Google, OverDrive, Nook,...) Google TH ■ A new kind of player, US-based or international technology and e-commerce companies, have entered the publishing arena with a different economic rationale from traditional retailers amazon SAMSUNG Book Search Digitization of contents Kindle's success thanks to ebooks pricing at 9.99$ Launch of the Ipad Launch of Samsung Galaxy 2004 2009 2010 2012 By leveraging its size, Hachette was able to implement balanced solutions with Google, Amazon, Apple: the agency model allowed new entrants without impacting the market dynamics Source: Hachette Livre data 20 20#21IN ALL BOOK MARKETS, TRADITIONAL RETAIL UNDERGOES FURTHER CONCENTRATION Lagardère PUBLISHING INVESTOR DAY H hachette - LIVRE PRESENTATION ■ In most book markets, bookshops and traditional retail experience difficulties or bankruptcies Examples BORDERS REDgroup ® retail W hmv Virgia chapitre Waterstone's 0 ■ These difficulties mostly result from financial failures in a changing environment (digital development, economic crisis) ☐ ■ These phenomena are gradual: the liability in terms of value is therefore limited by: market adjustments with the transfer of volumes to other bookstores & channels - anticipation and monitoring of credit loss in publishers' accounts 21 24#22INVESTOR DAY - H hachette LIVRE PRESENTATION THE DIGITAL TRANSFORMATION HAS INCREASED COMPETITION Before Established competiting publishers Gallimard Grupo Planeta After Competiting publishers .Éditions Gallimard Lagardère FLAMMARION GROUPE PUBLISHING Grupo Planeta RANDOM HOUSE PENGUIN RANDOM HOUSE or new entrants in Literature (Actes Sud, Le ■ New competitors Dilettante...) Retailers amazon publishing Retailers (but at low level) BARNES &NOBLE Acquisition of Sterling Publishing in 2003 sold in 2012 WHSmith Shareholder of Hodder Headline before its acquisition by Hachette Livre + some French Bookstores publishing a few titles Self-publishing platforms kindle direct publishing pubit! ARCHWAY PUBLISHING by Barnes & Noble FROM SIMON & SCHUSTER Agents Digital-only imprints Versilio, publishing house of agent Susanna Lea owning digital rights of Marc Lévy HARPER TEEN IMPULSE Be impulsive. Read them all each year New digital entrants Pocket Star Simon & Schuster Players from the gaming and animation industry producing enriched apps and books for children (Chocolapps, Auryn, etc.) 22#23INVESTOR DAY H hachette - LIVRE PRESENTATION IN REACTION TO THIS CHANGING LANDSCAPE, GLOBAL PUBLISHERS HAVE INITIATED A NEW CONSOLIDATION PHASE Lagardère PUBLISHING Acquisition of Flammarion by Gallimard Transaction closed in September 2012 Consolidated market share on the French print market of ~13% in value and ~14% in volume Penguin Random house merger - Announced in October 2012 Completion of transaction expected in July 2013 Consolidated market share of ~28% in the US Acquisition of Santillana Ediciones Generales by Penguin Random House Reinforcement of Penguin Random House on the Spanish-language market and on the Portuguese-language market Imprints such as Aguilar, Alfaguara, Punta de Lectura, Suma de Letras, Taurus in Spain and Latin America Editora Objetiva in Brazil Éditions Gallimard FLAMMARION GROUPE PENGUIN RANDOM HOUSE PENGUIN RANDOM HOUSE SANTILLANA - - Acquisition of Harlequin by News Corp (HarperCollins) HarperCollinsPublishers HARLEQUIN Hachette Livre had anticipated this market consolidation as early as in 2003-2006 Sources: Ipsos, Nielsen Bookscan 23 23#24INVESTOR DAY-hachette AGENDA LIVRE PRESENTATION Hachette Livre since 2010 - Hachette Livre today - 2003-2013 highlights Hachette Livre's successful digital transformation - - - Market environment: a new deal Actions put in place and results today Opportunities Three year outlook - - - Pursue digital transformation Consolidate market position Invest in emerging markets Conclusion Lagardère PUBLISHING 24#25INVESTOR DAY H hachette - LIVRE PRESENTATION SINCE 2007, PROACTIVE ACTIONS HAVE BEEN TAKEN TO SUCCEED IN THE DIGITAL TRANSITION AND PRESERVE MARKET VALUE (1/2) Lagardère PUBLISHING Development of a legal digital offer Securing of rights through systematic acquisition of print and digital rights Digitization of backlists and systematic release of front list titles in both print and digital formats Ensuring availability of ebooks on all platforms and formats Implementation of innovative R&D policy regarding products to anticipate evolutions especially on the Children and Educational segments Human resources and expertise Training teams to use new tools (production of ebooks...) Recruitment and development of new skills (webmarketing, websites, community management, CRM...) Development of digital infrastructures and adaptation of traditional structures Investments in internal digital infrastructures (Digital Asset Delivery, metadata management system, CRM...) Adaptation of traditional structures (distribution, sales forces...) 25#26INVESTOR DAY H hachette - LIVRE PRESENTATION SINCE 2007, PROACTIVE ACTIONS HAVE BEEN TAKEN TO SUCCEED IN THE DIGITAL TRANSITION AND PRESERVE MARKET VALUE (2/2) Fostering competition among e-retail partners Lagardère PUBLISHING Supporting competition among e-retailers to avoid dominant position in the value chain: development of a large network of clients composed of both international and local clients (Amazon, Apple, Kobo as well as Cultura, Fnac, independent French bookstores through Numilog partnership...) Control over business models Agreement with Google for out-of-print books Agreement with authors on a "new publishing contract” in France Agency model implemented with e-retailers thanks to Hachette Livre's size and Anglo- Saxon presence in order to retain control over ebook pricing Cautious approach towards new business models Adequate protection mechanisms Use of adequate protection mechanisms (DRM) with interoperable formats (Epub) which are user-friendly Active search of illegal contents through anti-piracy tools limiting the proliferation of illegal copies Publishing benefits from consumer awareness regarding fraudulent nature of file sharing and the existing legal frameworks against piracy Participation of Hachette Livre in development on interoperability and standard norms (IPDF, W3C) 26#27INVESTOR DAY - H hachette PRESENTATION DIGITAL IN TRADE IS NOW A REALITY FOR HACHETTE LIVRE, Lagardère WITH THE USA AND THE UK FAR AHEAD ■ Hachette Livre digital revenues increased strongly since 2010 and now account for ~10% of total revenues, driven by strong growth of Trade digital sales from Hachette Book Group and Hachette UK Share of digital in Hachette Livre revenues 2008-2013 PUBLISHING 10% 8% 6% 0,1% 0,7% 2% 2008 2009 2010 2011 2012 2013 Ebooks as of Trade sales in the USA 30% 24% 21% 8% 3% 1% 2007 2008 2009 2010 2011 2012 2013 Ebooks as of Trade adult sales in the UK 27% 20% 10% 1% 2009 2010 2011 2012 2013 ■ Book publishing is the first media industry to successfully enter the digital arena: no market decrease, limited piracy, flat profits. Source: Hachette Livre data 27 27#28INVESTOR DAY - H hachette LIVRE PRESENTATION DIGITAL REMAINS MARGINAL IN EDUCATION TO DATE Lagardère PUBLISHING Hachette Livre has successfully concentrated its investment and strategic focus on organic development when other players (Vivendi,...) did proceed to very expensive build up of digital acquisitions In European countries, the pace of penetration of digital depends on: - - The funding of equipment in classes and broadband infrastructure in schools The training and use of technology by teachers: today's teaching methodologies are based on print content in a context of tight budget availability and high conservatism Therefore, the weight of digital within education activities remains marginal in the countries in which Hachette Livre operates (UK, France and Spain observing similar trends as France) Share of digital within Education sales Share of digital within Education sales 4,8% 2012 3.0% 2013 0,2% 0,2% 2012 2013 Note: UK figures include revenues from Dynamic Learning and ebook sales; figures for France includes educational ebooks and apps Source: Hachette Livre data 28#29INVESTOR DAY H hachette - LIVRE PRESENTATION HACHETTE LIVRE IS PROACTIVELY IMPLEMENTING INNOVATIVE ACTIONS REGARDING DIGITAL EDUCATIONAL PUBLISHING Lagardère PUBLISHING Several initiatives have been implemented by Hachette in order to be ahead in digital and ready when the market takes off Examples in France: Development and production of eSchoolbooks by educational publishers, available on all devices and sold through the KNE (own distribution platform) Development of websites for students, parents, teachers presenting collections and digital applications Production of mobile applications Examples in Spain: - 2014 reform including budget dedicated to digital Anaya implemented a new platform to produce digital schoolbooks Example in the UK: development of Dynamic Learning by Hodder Education, allowing teachers and students to access on all devices a content rich e-learning platform 1360 HATIER MANUEL INTERACTIF Chachette annabac 7x8 Les dictées Bescherelle hachette Anglais hachette EDUCATION Nero a 29#30INVESTOR DAY-hachette AGENDA LIVRE PRESENTATION Lagardère PUBLISHING Hachette Livre since 2010 - Hachette Livre today - 2003-2013 highlights Hachette Livre's successful digital transformation - - - Market environment: a new deal Actions put in place and results today Opportunities Three year outlook - - - Pursue digital transformation Consolidate market position Invest in emerging markets Conclusion 30#31INVESTOR DAY H hachette - LIVRE PRESENTATION PUBLISHER'S ROLE REMAINS CENTRAL IN THE CREATION, PRODUCTION AND SALE OF BOOKS Lagardère PUBLISHING Consumers Advice and recommendations for cultural products needed A publisher is a sifter: culling of contents, focusing on superior works among a high number of projects submitted Authors Traditional publishers remain more attractive Bestselling authors need exclusive services (advances, editorial expertise, marketing and sales clout...) not offered by new publishing structures Rare self-published authors proving to be successful subsequently looked for a traditional publisher in order to increase their sales Publisher's mission is to finance, work with the author, format, promote, market, distribute the work With a forecasted digital penetration of the market of <40%, publishing will still be driven by print book sales: the complexity of the business will remain and won't be acquired by new players 31#32INVESTOR DAY - H hachette LIVRE PRESENTATION DIGITAL IN TRADE CREATES ADDITIONAL MARKET OPPORTUNITIES Hachette Livre aims at reaching new readers by selling its ebooks worldwide: - The digital sales network of the group is being extended to new territories Lagardère PUBLISHING Worldwide ebook distribution can allow the group to meet demand of new pools of readers (for example expatriates, French-speaking readers abroad...) Enriched contents, which are progressing, attract a new kind of readers won over by interactivity Boundaries between enriched books/applications and other media (gaming, animation...) are increasingly blurred: digital books therefore compete with these multimedia activities Young readers, who are not core readers but have increasing digital habits, will be attracted by these contents Device penetration will continue to increase and develop the digital market: - Digital will continue to grow in Hachette Livre's core markets Emerging countries (Asia, Africa...) experiencing strong device penetration will offer new market opportunities in the mid-term Therefore, digital increases the Trade book market size and Hachette Livre is fully prepared to take advantage of these new market opportunities 32#33INVESTOR DAY H hachette - PRESENTATION LIVRE DIGITAL EDUCATION MARKET, STILL MARGINAL IN EUROPE, IS EXPECTED TO REPRESENT AN OPPORTUNITY BY 2025 Lagardère In the countries where Hachette Livre operates, digital market for Education is still marginal: - The more advanced digital education market is the UK: ~10% of the publishing market Digital education remains embryonic in France (~1% of the market) and in Spain The transition of Education to digital will occur by 2025 in France and Spain. - In France: shift towards Digital-only Education at the latest by 2025 - PUBLISHING Very similar scenario in Spain with even more complexity imposed by decentralization and local curriculum/language Educational publishing will move from print to print and digital content and services The educational digital market is already quite developed in the USA and is a reality for US educational publishers: 33.5% of US college students enrolled took at least one online course in 2012 High share of Digital in revenues of Education publishers - Pearson: 60% of total revenues derive from digital products and services Houghton Mifflin Harcourt: 28% of revenues* Without running ahead of market, Hachette Livre is in the process of building all the necessary skills. Its brands, market share and market knowledge will also represent a considerable advantage to benefit from this paradigm shift * As of June 2013. Sources: Press; The Publishers Association; Babson annual online learning survey; Hachette Livre data, annual reports 33#34INVESTOR DAY-hachette AGENDA LIVRE PRESENTATION Hachette Livre since 2010 - Hachette Livre today - 2003-2013 highlights Hachette Livre's successful digital transformation - - - Market environment: a new deal Actions put in place and results today Opportunities Three year outlook - - - Pursue digital transformation Consolidate market position Invest in emerging markets Conclusion Lagardère PUBLISHING 34#35hachette PRESENTATION INVESTOR DAY - HIG CONTEXT: TRADE EBOOK PENETRATION IS ABOUT TO STABILIZE AT 25%-35% IN THE USA AND LIKELY TO REACH 35% IN THE UK Lagardère Ebooks share of total sales in the USA should continue to increase but at a lower pace to stabilize between 25-35% by 2017 UK market will follow the US market trend with ebook share reaching-35% of 2017 total market PUBLISHING In France, despite a protracted take-off, ebooks will account for 10-15% of Trade market with Hachette Livre leading eBook Trade market growth scenario (% total Trade market in value) 40% 35% 30% 22% 25% 20% 15% 10% 1-2% 5% 0% 25%-35% 10%-15% 2007 2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f Sources: The Publishers Association; Bookstats; SNE; Hachette Livre estimates 35#36INVESTOR DAY - H hachette LIVRE PRESENTATION STRATEGIC PRIORITIES (1/3): STRENGTHEN SUCCESSFUL BUSINESS MODEL Stand by our economic business model in which value is preserved: - - - Promote interoperability through unique format & DRM Retain control over ebook pricing Support sales in bookstores Be vigilant on intellectual property and protect author rights Lagardère PUBLISHING Complete the construction of digital infrastructures: Digital Asset Delivery, Sales Scan,... Pursue innovation policy (services to authors, R&D) in order to maintain leadership in digital landscape Applications Social network dedicated to books Enriched trade ebooks and illustrated books Asteri Aster-Pete's LE GLIDE HACHETTE DES VINS 2013 LE COURS DE CUBED L'ATELIER DES CHEFS Video Gain scale to successfully ensure a profitable digital transition: - Keep pace on digital development: economies of scale in R&D and infrastructure costs will represent a tangible competitive advantage Maintain bargaining power in commercial negotiations with retailers 36#37INVESTOR DAY H hachette - LIVRE PRESENTATION STRATEGIC PRIORITIES (2/3): DEVELOP DIGITAL SALES NETWORK IN ORDER TO REACH WORLDWIDE PRESENCE Lagardère PUBLISHING Achieve worldwide ebook distribution for the group by end 2014 Distribution agreement between Hachette Book Group and Hachette UK to expand presence in English language markets worldwide (~190 countries) Sales in the UK, Europe, Australia, India and Africa through Hachette UK Sales in South America, the Caribbean and Asia through HBG HBG/HUK Distribution Partnership HBG distribution Territories HUK Distribution Territories HBG/HUK Shared Territory Distribution of French ebooks in 30 territories to date, with US and all other key territories planned in the coming months 40 37#38INVESTOR DAY - H hachette LIVRE PRESENTATION STRATEGIC PRIORITIES (3/3): DEVELOP CRM IN ORDER TO GAIN DIRECT ACCESS TO READERS Lagardère PUBLISHING ☐ Information pertaining to the final client belongs to retailers Today Big data allows more players of the value chain to gain access to consumer knowledge and contacts: Consumer Insight / CRM CRM for Hachette means building a relationship between publishers, editors, authors and readers/consumers in order to: - - Create a direct access to consumers Allow publishers to promote their books directly to targeted readers Support commercial operations and cross-selling activities Fight against piracy Optimize marketing costs. 38#39INVESTOR DAY-hachette AGENDA LIVRE PRESENTATION Hachette Livre since 2010 - Hachette Livre today - 2003-2013 highlights Hachette Livre's successful digital transformation - - - Market environment: a new deal Actions put in place and results today Opportunities Three year outlook - - - Pursue digital transformation Consolidate market position Invest in emerging markets Conclusion Lagardère PUBLISHING 39#40INVESTOR DAY H hachette - PRESENTATION LIVRE HACHETTE LIVRE WILL HAVE TO FOLLOW THE INDUSTRY CONSOLIDATION THAT HAS BEEN INITIATED BY LARGE ANGLO-SAXON PLAYERS Lagardère PUBLISHING Joint venture between Penguin and Random House announced in October 2012 and completed in July 2013, creating a giant competitor especially in the US and the UK: Combined sales of ~€3bn ~28% market share in the USA and ~24% in the UK 15K publications per year, 250 imprints, 70 Nobel prizes as authors News Corp (HarperCollins) announced in May 2014 the acquisition of Harlequin Consolidation provides: Back-office synergies - Higher attractiveness for valuable licenses - Digital development synergies Improved market share and reinforcement of the bargaining power with respect to e-retailers seeking to force publishers to adjust commercial strategy for ebooks Publishers need size and muscle in order to keep control over relations with authors, over pricing and distribution Large US players share Hachette Livre strategic analysis that size is and will remain key Sources: press; Nielsen Bookscan (print volumes for the US market share and print value for the UK market share) 40 40#41INVESTOR DAY H hachette - LIVRE PRESENTATION HACHETTE LIVRE IS PURSUING SIX STRATEGIC PRIORITIES TO CONSOLIDATE ITS MARKET POSITION Lagardère PUBLISHING 1 Hachette Livre Strategy 2 Organic growth External growth ■ International development in Partworks Development of the distribution activity for third-party clients Development of catalogs in the USA mainly ■ Source more key authors and licenses ■ Rebalance USA/UK ■ Be a premier league competitor in the US Trade market (key in digital development) 41#421 INVESTOR DAY H hachette - LIVRE PRESENTATION HACHETTE LIVRE WILL PURSUE ITS INTERNATIONAL DEVELOPMENT IN PARTWORKS Lagardère PUBLISHING Partworks activity of Hachette Collections experienced growth in 2013 except in Spain Hachette Collections maintains its strategy of expansion by: Paying strong attention to investment costs in European countries • France, UK, Spain, Italy, Germany • • United Kingdom Germany Italy Re-using all products in secondary markets: ANZ • Canada Poland • Eastern Europe Pursuing its international development strategy in countries experiencing growth and market size: . Japan • Russia . Brazil Testing new markets: China, India, South East of Asia 42#43INVESTOR DAY H hachette - LIVRE PRESENTATION 1 HACHETTE LIVRE INTENDS TO ADD NEW DISTRIBUTION CLIENTS Lagardère PUBLISHING Hachette Livre's distribution strategy is customized in each country with the objective to implement the most powerful organization: Internalizing the distribution capacity in core markets (US, UK, France, Spain and ANZ) Looking for the best partners in other markets (Canada, Switzerland) Share of best practices across markets Hachette Livre benefits from best-in-class distribution assets in its core markets providing the group with platforms offering very profitable services to smaller publishers In these markets, the Group aims at gaining significant third-party business in the years to come when small distributors will disappear: - - Three new third-party clients joining in 2014 in France Permanent flow of new contracts in the UK Expansion of HBG's facility in Indiana to add distribution clients 43#44INVESTOR DAY - Har hachette PRESENTATION 1 HACHETTE LIVRE IS BUSY GROWING ITS CATALOGS... Lagardère PUBLISHING Development of catalogs ■ As an example, Hachette Book Group is executing strategy to expand its Non Fiction presence through: the acquisition of the assets of Hyperion Books in 2013; the creation of Hachette Books, a new imprint focused on Non Fiction; as well as organic growth initiatives through existing imprints The group is also strengthening its position through the recruitment of experienced and talented publishing teams, who will enhance the diversity of the book portfolio over many segments (UK, France...) Implementation of author-friendly policies ■ Hachette Livre intends to reinforce links between publishers and authors through proximity and tailor-made services: Traditional services in print Digital services such as: Mobile App MICHAEL CONNELLY Twitter account Marketing and promotion on the internet Monitoring of reputation on social networks Example of Michael Connelly почт Website MICHAEL CONNELLY FUTATS MICHAEL DONNELLY pp w - готвия - C BEARCH THE BURNING ROOM A HARRY BOSCH NOVEL AVAILABLE MOVENBEN 1 IN SA & CANADA Vidal County Mom w T 44#45INVESTOR DAY - H hachette LIVRE PRESENTATION 1 IN ORDER TO SOURCE MORE KEY AUTHORS AND LICENSES Lagardère PUBLISHING Editorial leadership is necessary to attract new talents: Hachette Livre endeavors to reach the best authors, thanks to its reputation and brand recognition, as well as a privileged access to agents Hachette Livre is actively looking for international bestsellers with worldwide rights: international bestsellers generate strong sales and can be strong contributors to profits if well-managed These talents are mainly sourced in the US: - 40% of the worldwide book market is composed of English-language books International bestsellers come mostly from the US market Cinquante de Grey Cinquante nuances Cinquante III. James Lalog Pay Shade Ch daires INFERNO DAN BROWN Examples of US bestsellers published by Hachette Livre in France Hachette Livre is focusing on the US market to identify, acquire and develop top authors, titles, licenses to maintain its leading position in all markets - As an example, acquisition of Donna Tartt, author of the Goldfinch, who won the Pulitzer Prize for Fiction 45 45#46INVESTOR DAY H hachette - LIVRE PRESENTATION 2 THE US BOOK MARKET IS ESSENTIAL FOR THE EDITORIAL LEADERSHIP OF THE GROUP The US book market is larger than the UK market in terms of: Readership Number of new titles published Lagardère It is necessary to be a bigger player in the USA than in the UK in order to secure enough primary rights Historical establishment of Hachette in the UK first: - Portfolio of activities between the USA and the UK is skewed British publishers of the group are insufficiently provided with US titles by Hachette Book Group Hachette UK publishes bestselling authors that are not published by Hachette Book Group but rather by competitors in the USA: Stephen King, Harlan Coben... PUBLISHING Rebalance the weight of the US vs the UK subsidiary 46#47INVESTOR DAY H hachette - LIVRE PRESENTATION 2 HACHETTE INTENDS TO BE A PREMIER LEAGUE COMPETITOR IN THE US TRADE MARKET AS SIZE IS, AND WILL CONTINUE TO BE, A CRITICAL ASSET IN THE FORTHCOMING YEARS IN THIS MARKET Lagardère PUBLISHING The US market is dominated by a few players 2013 top 5 pro-forma market shares on the US Trade print market (in volume) 27.7% Penguin 10.5% 7.5% 5.8% HarperCollins Simon & Schuster Hachette Book Group Random House Harlequin 4.9% Macmillan Penguin-Random House controlling ~28% of the print market US-based technology and e-commerce companies such as Amazon dominating the US digital market Hachette Livre strategy and rationale In this new environment, scale is important: To attract authors (particularly for bestselling authors), acquire valuable licenses and control more worldwide rights To maintain bargaining power in a context of increasing downstream concentration of retailers: sales and profits expected to be preserved for publishers, even improved, as long as tight control is kept on business models To benefit from synergies Hachette Book Group market share is only ~6% Objective to secure HBG's position on this market by reviewing external growth opportunities, be it through creative JVs, synergy-driven small acquisitions Source: Nielsen Bookscan 47#48INVESTOR DAY-hachette AGENDA LIVRE PRESENTATION Hachette Livre since 2010 - Hachette Livre today - 2003-2013 highlights Hachette Livre's successful digital transformation - - - Market environment: a new deal Actions put in place and results today Opportunities Three year outlook - - - Pursue digital transformation Consolidate market position Invest in emerging markets Conclusion Lagardère PUBLISHING 48#49INVESTOR DAY H hachette - LIVRE PRESENTATION HACHETTE LIVRE IS MONITORING BOOK MARKETS WORLDWIDE WITH A VIEW TO EXPAND INTERNATIONALLY Lagardère PUBLISHING Hachette Livre constantly monitors book markets worldwide. After opening for business in China, India, Russia and Middle East (Lebanon), Hachette Livre intends to pursue its international expansion in emerging markets: Focus on countries with high-profile economic and demographic growth potential such as Brazil, Turkey, Asia... Hachette Livre relies on key principles when a decision to invest in a new international market is made: - - - Target a market with growth potential Enter a new market through a partnership Look for a partner with complementary strengths 49#50hachette PRESENTATION INVESTOR DAY - H LIVRE THANKS TO ESTABLISHED PRESENCE IN FRENCH-SPEAKING AFRICAN COUNTRIES, HACHETTE LIVRE ENSURES A LONG TERM LEADING POSITION IN THESE MARKETS Strong economic and demographic growth in French-speaking countries in Africa. Progression of French language: ~500m of French-speaking people in this area by 2050 (85% of total French-speaking community) Increase of Education favoring: - The progression of French language Literacy among population Presence in Africa through Hachette Livre International: - Publication of textbooks, supplemental books, children and practical books Well-positioned to benefit from the expected growth of book markets in this area Lagardère PUBLISHING Presence of Hachette Livre International in Africa Main markets in 2013 Congo Morocco Algeria Togo Cameroun Reunion M Algeria Tunisia Lebanon Mali Niger Chad Senegal Paso Guinea Djibouti Central African Republic Benin Ivory Coast Cameroon Congo Gabon DR Congo Burundi Rwanda Madagascar Reunion Learners of and in French language worldwide - 2010 8% 2% America/Carribean ■ Asia/Oceania 44% 23,4% 22,6% Europe ■North-Africa/Middle East Sub-Saharan Africa/Indian Ocean Source: Observatoire International de la Francophonie 50#51INVESTOR DAY-hachette AGENDA LIVRE PRESENTATION Hachette Livre since 2010 - Hachette Livre today - 2003-2013 highlights Hachette Livre's successful digital transformation - Market environment: a new deal - - Actions put in place and results today Opportunities Three year outlook - - - Pursue digital transformation Consolidate market position Invest in emerging markets Conclusion Lagardère PUBLISHING 51#52INVESTOR DAY - Hachette LIVRE PRESENTATION CONCLUSION Lagardère PUBLISHING Hachette Livre is the world's #3 consumer book publisher with a strong presence worldwide The group delivers solid and predictable results thanks to a balanced portfolio Digital modifies the market environment of publishing but represents an opportunity for publishers, whose role remains central Hachette Livre is proactively transforming to ensure successful digital transition Hachette Livre will continue to deliver growth by focusing on the following strategic priorities: Pursue digital transition and gain scale Grow by acquisitions through cash or JV (depending on size) with a focus on the USA Expand internationally 52 2