Financing Guidelines

The primary objective of Bertelsmann’s financial policy is to achieve a balance between financial security, return on equity and growth. For this, Bertelsmann bases its financing policy on the requirements of a “Baa1/BBB+” credit rating and the associated qualitative and quantitative criteria. Credit ratings and capital market transparency make a considerable contribution to the company’s financial security and independence.

In accordance with the Group structure, the capital allocation is made centrally by Bertelsmann SE & Co. KGaA, which provides the Group companies with liquidity and manages the issuance of guarantees and letters of comfort for them. The Group consists largely of a single financial unit, thereby optimizing capital procurement and investment opportunities.

Bertelsmann utilizes a financial control system employing quantitative financial targets concerning the Group’s economic debt and, to a lesser extent, its capital structure. One of the financial targets is a dynamic leverage factor calculated as the ratio of economic debt to Operating EBITDA and limited to the defined maximum of 2.5. In determining the leverage factor, the hybrid bonds are accounted for at 50 percent. Economic debt is defined as net financial debt less the 50 percent par value component of the hybrid bonds plus provisions for pensions, profit participation capital and the net present value of operating leases. Like operating EBITDA, economic debt is modified for calculation purposes.

Financial Targets  

Target20152014
Leverage factor: Economic debt/Operating EBITDA1)< 2.52.42.7
Coverage ratio: Operating EBITDA/Financial result1)> 4.010.17.5
Equity ratio: Equity as a ratio to total assets (in percent)> 25.041.238.9

As of December 31, 2015, the leverage factor of Bertelsmann was 2.4, below the previous year’s value and below its selfimposed maximum value of 2.5 (December 31, 2014: 2.7). As of December 31, 2015, economic debt was reduced to €5,609 million from €6,039 million in the previous year. This reduction was primarily achieved through the hybrid bonds issued in the reporting period which are allocated at only 50 percent to economic debt. The net financial debt increased to €2,765 million (previous year: €1,689 million). The increase is mainly attributable to a voluntary contribution of €650 million to the plan assets held under the trusteeship of Bertelsmann Pension Trust e. V. as part of the inclusion of Gruner + Jahr and Prinovis. Consequently, the pension provisions and similar obligations were reduced and amounted to €1,709 million as of December 31, 2015 (December 31, 2014: €2,698 million).

Another financial target is the coverage ratio. This is calculated as the ratio of operating EBITDA (after modifications) to financial result and is supposed to be above 4. In the reporting period, the coverage ratio was 10.1 (previous year: 7.5). The Group’s equity ratio was 41.2 percent (December 31, 2014: 38.9 percent), which remains significantly above the self-imposed minimum of 25 percent.

Financing Activities

Bonds and Promissory Notes of Bertelsmann SE & Co. KGaA  

Issue volume
in € millions
Carrying amount
12/31/2015
in € millions
Due dateTypeNominal interest in percent
1,000786September 26, 2016Bond4.750
6060May 4, 2019Promissory note4.207
100100November 18, 2019Floating-rate note3-mon.-EURIBOR + 40 Bp.
100100December 1, 2020Promissory note0.774
750742August 2, 2022Bond2.625
500496October 14, 2024Bond1.750
150149December 1, 2025Promissory note1.787
10098June 29, 2032Bond3.700
650646April 23, 20751)Hybrid bond3.000
600596April 23, 20752)Hybrid bond3.500

In the reporting period, the financial profile of the Group was strengthened through the issuance of two hybrid bonds with a total volume of €1.25 billion. The subordinated bonds with a term of 60 years were issued by Bertelsmann in two tranches with early redemption options. The first tranche has a volume of €650 million, carries a coupon of 3.0 percent and contains an early redemption option for the first time after eight years. The second tranche has a volume of €600 million, carries a coupon of 3.5 percent and contains an early redemption option for the first time after twelve years. The bonds listed in Luxembourg were rated by the rating agencies Moody’s and Standard & Poor’s (S&P) with instrument ratings of “Baa3” and “BBB-,” respectively. Both bonds are classified by the rating agencies as 50 percent equity and thus improve the financial key figures which are relevant for Bertelsmann’s credit rating. In October, a bond was repaid from existing liquidity when it became due. In addition, on December 1, 2015, Bertelsmann took out a promissory note in the amount of €100 million with a five-year term and a promissory note in the amount of €150 million with a ten-year term.

Maturity Structure of Financial Debt in € millions

Maturity Structure of Financial Debt in € millions

Rating

Bertelsmann has been rated by the rating agencies Moody’s and Standard & Poor’s (S&P) since 2002. The agency ratings facilitate access to the international capital markets and are therefore a key element of Bertelsmann’s financial security. Bertelsmann is rated by Moody’s as “Baa1” (outlook: stable) and by S&P as “BBB+” (outlook: stable). Both credit ratings are in the investment-grade category and meet Bertelsmann’s target rating. Bertelsmann’s short-term credit quality rating is “P-2” from Moody’s and “A-2” from S&P.

Credit Facilities

As well as its existing liquidity, the Bertelsmann Group has access to liquidity via a syndicated loan with a term until 2020. This forms the backbone of the strategic credit reserve; Bertelsmann can utilize this to draw down up to €1.2 billion of revolving funds in euros, US dollars and pounds sterling.

Cash Flow Statement

In the reporting period, Bertelsmann generated net cash from operating activities of €1,600 million (previous year: €1,523 million). The Group’s long-term operating free cash flow adjusted for non-recurring items was €1,559 million (previous year: €1,711 million). The deviation compared to the previous year’s figure is attributable, among other things, to a higher overall level of net working capital. Higher burdens also result from the investments in operating non-current assets. The cash conversion rate was 83 percent (previous year: 97 percent). The cash flow from investing activities was €‑1,785 million (previous year: €‑1,523 million). This included investments in intangible assets, property, plant and equipment and financial assets of €‑1,093 million (previous year: €‑758 million). The purchase prices for consolidated investments (net of acquired cash and cash equivalents) were €‑166 million (previous year: €-820 million). Proceeds from the sale of subsidiaries and other business units and disposal of other non-current assets were €163 million (previous year: €90 million). Cash flow from financing activities was €‑122 million (previous year: €‑1,434 million). The deviation is primarily attributable to inflows from the issuance of hybrid bonds in the reporting period. Dividends paid to the shareholders of Bertelsmann SE & Co. KGaA came to €‑180 million (previous year: €‑180 million). Dividends to non-controlling interests and further payments to partners in partnerships came to €‑450 million (previous year: €‑585 million). As of December 31, 2015, Bertelsmann had cash and cash equivalents of €1.3 billion (previous year: €1.3 billion).

Consolidated Cash Flow Statement (Summary)  

in € millions20152014 (adjusted)
Cash flow from operating activities1,6001,523
Cash flow from investing activities(1,785)(1,523)
Cash flow from financing activities122(1,434)
Change in cash and cash equivalents(63)(1,434)
Exchange rate effects and other changes in cash and cash equivalents4250
Cash and cash equivalents at 1/11,3312,715
Cash and cash equivalents at 12/311,3101,331
Less cash and cash equivalents included with assets held for sale(2)
Cash and cash equivalents at 12/31 (according to the Group balance sheet)1,3101,329

Off-Balance-Sheet Liabilities

The off-balance-sheet liabilities include contingent liabilities and other financial commitments, almost all of which result from operating activities conducted by the divisions. Off-balance-sheet liabilities increased year on year. The offbalance- sheet liabilities in place as of December 31, 2015, had no significant negative effects on the Group’s net assets, financial position and results of operation for the past or the future financial year.

Investments

Total investments including financial debt acquired of €41 million (previous year: €62 million) amounted to €1,281 million in the financial year 2015 (previous year: €1,601 million). Investments according to the cash flow statement amounted to €1,259 million (previous year: €1,578 million). As in previous years, the majority of the €297 million investment in property, plant and equipment (previous year: €334 million) stemmed from Arvato. Investments in intangible assets came to €349 million (previous year: €248 million) and were primarily attributable to RTL Group for investments in film rights and to BMG for the acquisition of music catalogs. The sum of €447 million was invested in financial assets (previous year: €176 million). These include, in particular, the acquisition of shares in HotChalk and Udacity. Purchase prices for consolidated investments (less acquired cash and cash equivalents) totaled €166 million in the reporting period (previous year: €820 million).

Investments by Division  

in € millions20152014
RTL Group330468
Penguin Random House43121
Gruner + Jahr5262
Arvato203246
Be Printers1629
Corporate Investments613656
Total investments by division1,2571,582
Corporate Center/Consolidation2(4)
Total investments1,2591,578

Balance Sheet

Total assets increased to €22.9 billion as of December 31, 2015 (previous year: €21.6 billion). Cash and cash equivalents of €1.3 billion were at the previous year’s level (previous year: €1.3 billion). Equity increased to €9.4 billion as of December 31, 2015 (previous year: €8.4 billion). This stems primarily from the increase in retained earnings as a result of the significantly increased Group profit in the reporting period. As a result of the higher equity, the equity ratio also increased from 38.9 percent in the previous year to 41.2 percent. Equity attributable to Bertelsmann SE & Co. KGaA shareholders increased to €7.5 billion (previous year: €6.5 billion). Provisions for pensions and similar obligations decreased to €1,709 million (previous year: €2,698 million), largely as a result of a voluntary contribution to the plan assets held under the trusteeship of Bertelsmann Pension Trust e. V. and an interest-based decline in obligations from benefit commitments. Gross financial debt increased from €3,018 million to €4,075 million as of December 31, 2015, due to the taking up of long-term debt reported in the section “Financing Activities”. Apart from that, the balance sheet structure remained largely unchanged from the previous year.

Balance Sheet

Balance Sheet

Profit Participation Capital

Profit participation capital had a par value of €301 million as of December 31, 2015, which is unchanged from the previous year. If the effective interest method is applied, the carrying amount of profit participation capital was €413 million as of December 31, 2015 (previous year: €413 million). The 2001 profit participation certificates (ISIN DE0005229942) account for 94 percent of par value of profit participation capital, while the 1992 profit participation certificates (ISIN DE0005229900) account for the remaining 6 percent.

The 2001 profit participation certificates are officially listed for trading on the Regulated Market of the Frankfurt Stock Exchange. Their price is listed as a percentage of par value. The lowest closing rate of the 2001 profit participation certificates in the financial year 2015 was 296.00 percent in June; their highest was 357.50 percent in April.

Under the terms and conditions of the 2001 profit participation certificates, the payout for each full financial year is 15 percent of par value, subject to the availability of sufficient Group profit as well as net income at the level of Bertelsmann SE & Co. KGaA. These conditions were met in the past financial year. Accordingly, a payout of 15 percent of the notional value of the 2001 profit participation certificates will be made for the financial year 2015.

The 1992 profit participation certificates, approved for trading on the Regulated Market in Frankfurt, only have a limited cash trade due to their low volume. Payouts on the 1992 profit participation certificates are based on the Group’s return on total assets. As the return on total assets for the financial year 2015 was 6.99 percent (previous year: 4.93 percent), the payout on the 1992 profit participation certificates for the financial year 2015 will be 7.99 percent of their notional value (previous year: 5.93 percent).

The payout distribution date for both profit participation certificates is expected to be May 10, 2016. Under the terms and conditions of the profit participation certificates, the auditors appointed by Bertelsmann SE & Co. KGaA are responsible for verifying whether amounts to be distributed have been calculated correctly. The auditors of both profit participation certificates provide confirmation of this.