Anticipated Overall Economic Development

Bertelsmann anticipates that economic conditions will develop as follows in 2016. Overall, the global economy will remain on a moderate and uneven growth path. The Kiel Institute for the World Economy (IfW) estimates that global production will increase by 3.4 percent in 2016. The prospects for the advanced economies will be boosted by the low oil prices and the continuing favorable financing conditions. By contrast, structural barriers and macroeconomic imbalances will dampen the growth perspectives in the emerging countries. The global economic outlook has also noticeably deteriorated recently. Uncertainty on the markets has increased, particularly due to a significant slowdown of the Chinese economy.

In the eurozone, the economic recovery is set to continue even if downward risks remain. The IfW estimates real economic growth of 1.7 percent in 2016. The IfW expects GDP for Germany to grow by 2.2 percent in real terms. It expects the growth rate in France to be 1.2 percent in real terms. For the UK, GDP is expected to rise by 2.3 percent in real terms in 2016. In the United States, the positive growth trend is expected to continue in 2016; the IfW expects the economy to grow by 2.8 percent in real terms.

Anticipated Development in Relevant Markets

The worldwide media industry is primarily influenced by global economic developments and the resulting growth dynamic. The continued trend toward digitization of content and distribution channels, changes in media usage and the increasing influence of emerging economies will continue to present risks and opportunities in the years to come. Through the intended transformation of the Group portfolio in line with the four strategic priorities, Bertelsmann expects to benefit to an increasing extent from the resulting opportunities. Through its businesses, Bertelsmann operates in a variety of different markets and regions whose developments are subject to a range of factors and which do not respond in a linear fashion to overall economic tendencies. The following takes into account only those markets and regions which are large enough to be relevant for forecasting purposes and whose expected development can be appropriately aggregated and evaluated or which are strategically important from a Group perspective.

For 2016, slight growth is expected in most of the European TV advertising markets. In Spain, significant growth is expected. On the book markets, the trends observed in 2015 are expected to be less pronounced in view of the changes to sales conditions in the e-book segment and an overall stable development. In the magazine business, the print advertising and circulation markets in Germany and France are expected to decline further in 2016, while continued strong growth is expected in the digital segment. In 2016, the services markets are expected to achieve growth similar to the previous year. The relevant European print markets and the North American book printing market are likely to show continued decline in 2016. In 2016, the global music publishing market is forecast to show continued slight growth. The recorded music market is expected to show a stable development. For the US education markets, continuing strong growth is expected in the relevant segments.

Expected Business Development

The global economy is on a moderate and uneven growth path. However, economic prospects continue to be dogged by certain risks. The following expectations are therefore based on the assumption that the recovery of the overall economic situation will continue and that most of the forecasted market developments and the economic predictions of the research institutions will be realized.

For the financial year 2016, Bertelsmann anticipates that business development will be driven by the slightly positive market expectations for the European TV advertising Bertelsmann Annual Report 2015 35 markets, particularly in Spain, by stable book markets and by continuously growing service markets. The growth stimuli created through strategic portfolio expansions will continue to have a positive impact on Bertelsmann’s growth profile. The accelerated scaling back of structurally declining businesses – in particular, print, replication, clubs and direct marketing – will also help to mitigate their negative impact.

In addition to the assumed market developments, the predicted economic developments in the geographic core markets of Western Europe and the United States are the basis of the expected business development. With revenue and earnings share within the eurozone still expected to remain at around 75 percent, the extent of growth is above all based on the forecasted real and nominal economic development in this economic zone. The IfW therefore assumes that GDP in the eurozone will increase by 2.9 percent in nominal terms and by 1.7 percent in real terms for 2016. The OECD predicts that GDP in the eurozone will increase by 2.8 percent in nominal terms and by 1.8 percent in real terms for 2016. In view of these economic expectations and the dampening effects on growth from the continued scaling back of structurally declining businesses, Bertelsmann expects Group revenues to increase slightly in the financial year 2016. Operating EBITDA is expected to show stable development in the financial year 2016, as start-up losses for new businesses and the digital transformation of existing businesses will continue to increase. As a result of the full-year inclusion of the acquisitions made in the reporting period, Bertelsmann anticipates that invested capital will increase again in the financial year 2016. As a result of the growth profile of the acquired businesses, compensating effects from earnings contributions are not expected to materialize for some time. Consequently, a strong fall in BVA is expected for the Group. Arvato, on the other hand, expects a strong increase in BVA as a result of improved operating earnings.

At present, the expected performance of any individual unit of key significance for the Bertelsmann Group is not expected to deviate significantly from that of the Group.

Depending on how the economy develops, Bertelsmann does not currently anticipate interest rate changes to have any material impact on the average financing costs of mediumto long-term financing. The liquidity situation in the forecast period is expected to be sufficient.

These forecasts are based on Bertelsmann’s current business strategy as outlined in the “Corporate Profile” section and which is valid for the forecast period in the financial year 2016. The changes to the segment structure as of January 1, 2016, in particular at Arvato, Gruner + Jahr and Bertelsmann Printing Group, and the expansion of the segments do not affect the forecast from a Group perspective. In general, the forecasts reflect careful consideration of risks and opportunities and are based on operational planning and the medium-term outlook for the corporate divisions. All statements concerning potential economic and business developments represent opinions advanced on the basis of the information that is currently available. Should underlying assumptions fail to apply and/or further risks arise, actual results may differ from those expected. Accordingly, no assurances can be provided concerning the accuracy of such statements.