Bastei Lübbe : Half Year Report Fiscal Year 01/04/2022 - 30/09/2022

HALF-YEARLY STATEMENT

1 APRIL - 30 SEPTEMBER 2022

First-half report as of 30 September 2022

Economic report

Underlying conditions

The global economy is in a downturn. This is the conclusion drawn by the leading German economic research institutes in their autumn report. However, conditions vary from region to region. What is common in almost all regions is high inflation, to which central banks are responding by increasing their interest rates. Moreover, in Europe, the war in Ukraine has driven energy prices upwards again, while energy costs have risen at a disproportionately high rate as a result of the strong dependence on Russian gas. Thus, inflation in the Eurozone has risen sharply in recent months, reaching 10% in September.1 2

While the German economy was still on a growth trajectory at the beginning of 2022, this momentum slowed significantly after the Russian attack on Ukraine. The summer half of 2022 was marked by the direct and indirect effects of the war. This was compounded by high inflation, which is leaving deep traces on consumer spending, as it erodes private households' real incomes and savings, thereby reducing purchasing power and consumer confidence. Retailers have been feeling the effects of this restraint since the spring and it is now also clearly spreading to business confidence in the consumer-related service sectors. The manufacturing sector also experienced a damper in the summer. For one thing, the limited availability of raw materials and intermediate products continues to impede production. For another, demand is being dragged down by high prices and the slowdown in the global economy. However, the decline is less pronounced due to the high order backlog.3

According to the Munich-based Ifo Institute's October forecast, economic output in Germany is likely to remain flat in the third quarter of 2022, while the two winter quarters should see contraction of 0.2% and 0.4%, respectively.4 This is likely to be driven by the decline in consumer spending. Experts expect inflation to peak at the beginning of 2023, when many utilities adjust their electricity and gas prices in the light of the high procurement costs. This could push inflation up to around 11% in the first quarter of 2023, with a corresponding impact on real household incomes and purchasing power. The German federal government's planned relief measures will probably only provide partial compensation for this development. The Ifo Institute expects gross domestic product to rise by only 1.6% over 2022 as a whole, followed by contraction of 0.8% in the coming year. Consumer spending is set to increase by 4% in 2022 as a whole, before declining by 1.9% in 2023. The joint report by the leading economic research institutes comes to the conclusion at the end of September that consumer confidence will decline up until the summer of 2023, initially failing to return to pre- pandemic levels.5

Industry environment in the Bastei Lübbe business segments

The German book and publishing industry has not been left unscathed by the macroeconomic challenges. Declining consumer spending is being accompanied by significant increases in the cost of energy, raw materials and personnel. This is being exacerbated by the shortage of paper, which is an important raw material, leading to heightened procurement bottlenecks and a further rise in paper prices.

1. Gemeinschaftsdiagnose #Herbst 2022, p. 13f: https://gemeinschaftsdiagnose.de/wp-content/uploads/2022/10/GD_2022- 2.pdf
2. https://ec.europa.eu/eurostat/documents/2995521/14698140/2-30092022-AP-DE.pdf/2d5865c0-562e-7ab9-e2bf-dd1772388ea1?t=1664464562770
3. https://www.ifo.de/fakten/2022-09-12/ifo-konjunkturprognose-herbst-2022-inflation-wuergt-privaten-konsum-ab-deutsche
4. https://www.ifo.de/fakten/2022-09-12/ifo-konjunkturprognose-herbst-2022-inflation-wuergt-privaten-konsum-ab-deutsche
5. Gemeinschaftsdiagnose #Herbst 2022, S. 32ff: https://gemeinschaftsdiagnose.de/wp-content/uploads/2022/10/GD_2022- 2.pdf

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First-half report as of 30 September 2022

September 2022 was the fifth consecutive month of year-on-year revenue contraction in book retailing. Revenues in the first three quarters of 2022 were cumulatively 1.4% lower than in the same period in the previous year. Volume sales - i.e. the number of copies sold - fell by 1.3% compared to the same period in the previous year. The prices paid were 0.1 percent down on the same period in the previous year. Revenues declined by 4.4% in September, by 1.7% in August and by 9.0% in July. Compared with the pre-pandemic year of 2019, they were 2.0% lower in the first three quarters of the year.6

Revenues from full-range book retailing were up 7.3% over the previous year in the first three quarters of 2022, reflecting the fact that stores had been closed for several months at the beginning of the previous year, however. However, pre-pandemic levels are still a long way off: brick-and-mortar book retailers sustained a cumulative 8.7% decline in revenue in the period from January to September compared to the same period in 2019. On a cumulative basis, most product groups grew only because the previous year was weak. From a monthly and quarterly perspective, volume sales were down in almost all categories. In the year to the end of September, fiction - the product group accounting for the largest share of the market

- was at least able to outperform the previous year.7

Only figures for the first half of 2022 are available for eBooks. Compared to the same period of the previous year, eBook revenues increased by 3.0% in the period from January to June 2022. In the general-interest book market, this category accounted for 8.1% of all revenues. Volume sales were up 2.5% in this period, rising from 20.3 million to 20.9 million units, while the average price climbed slightly by 0.4% to 6.48 euros.8

Revenues from physical audiobooks continued to fall, with trade association Börsenverein des Buchhandels reporting a decline of 21.5% in the period from January to September 2022.9 No data for 2022 is yet available for digital audio formats, such as streaming. However, it can be assumed that this market is continuing to expand, thus making up for the declining revenues in the physical audio segment.

1. Börsenverein. Branchenmonitor Buch, Ausgabe Oktober 2022. https://www.boersenverein.de/markt- daten/marktforschung/branchen-monitor-buch/
2. Börsenverein. Branchenmonitor Buch, Ausgabe Oktober 2022. https://www.boersenverein.de/markt- daten/marktforschung/branchen-monitor-buch/
3. Börsenverein. Das E-Book in Deutschland: 1. Halbjahr 2022. https://www.boersenverein.de/markt-daten/marktforschung/e- books/
4. Börsenverein. Branchenmonitor Buch, Ausgabe Oktober 2022. https://www.boersenverein.de/markt- daten/marktforschung/branchen-monitor-buch/

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First-half report as of 30 September 2022

Business performance

Results of operations

Given the current macroeconomic conditions, the Executive Board is satisfied with the Group's revenues performance in the first half of the year. Earnings performance is not pleasing in view of the impairment recognised on the "smarticular" subsidiary. The massive turmoil in the printing and paper markets in the first half of the financial year exerted pressure on margins. However, disproportionately heavy strain on earnings and printing delays were avoided thanks to extensive crisis management. Bastei Lübbe AG posted Group revenues of €44.1 million in the period from April to September of the 2022/2023 financial year, compared with €41.2 million in the same period of the previous year. This translates into an increase of 7% over the previous year. Group EBIT fell to €0.9 million, down from €4.5 million in the same period in the previous year. This was mainly due to the reduction of around €0.6 million in the contribution to earnings of Business Hub Berlin UG ("smarticular") and the impairment recognised on its goodwill and other intangible assets, together with a higher-than-expected increase in the prices of paper and printing in core business. Adjusted for the impairments recognised on the subsidiary, EBIT for the first half of the financial year amounts to €2.9 million, equivalent to an adjusted EBIT margin of 6.6%.

Group revenues include the fully consolidated subsidiary CE Community Editions GmbH in the period under review for the first time (revenues in the previous year: €1.2 million; revenues in the period under review: €2.9 million).

Revenues in the "Book" segment increased from €37.7 million to €40.7 million in the period under review, underpinned by the aforementioned first-time consolidation of CE Community Editions GmbH and the favourable business performance of the LYX imprint. Moreover, "Drachenbanner" by Rebecca Gablé, the top release in the autumn 2022 programme, has already been published. In the previous year, the top sellers in the autumn 2021 programme, "Never" by Ken Follett and "Der Zorn des Oktopus" by Dirk Rossmann and Ralf Hoppe, were released in the second half of the financial year ahead of Christmas business, thus not having any impact until the third quarter of the previous year. Segment EBIT dropped to €0.9 million in the period under review, compared with €4.0 million in the same period in the previous year. This is primarily due to the factors mentioned above.

The "Novel Booklets" segment posted revenues of €3.4 million in the first half of the 2022/2023 financial year, thus falling only slightly short of the previous year (€3.6 million). The lower volume sales in wholesale press business were only partially offset by price increases and the expansion of subscription and digital business. Segment EBIT reached €29k in the period under review, compared with €0.6 million in the previous year. In addition to the slightly lower revenues, the "Novel Booklets" segment was particularly affected by the significant increase in paper, printing and delivery costs (€0.4 million).

Changes in inventories of finished goods and work in progress came to €-0.1 million, i.e. €0.3 million up on the previous year (€-0.4 million).

At €0.1 million, other operating expenses were lower than in the previous year (€0.6 million), partially as a result of the deconsolidation gains of €0.2 million on the sale of the shares in J.P. Bachem Editionen GmbH in the previous year.

At €21.6 million in the period under review, the cost of materials was substantially up on the previous year (€18.7 million) and primarily reflects higher paper and printing costs.

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