Financing Guidelines

The primary objective of Bertelsmann’s financial policy is to achieve a balance of 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 key financial target is a dynamic leverage factor, calculated as the ratio of economic debt to Operating EBITDA over a twelvemonth period and limited to a maximum of 2.5. Economic debt is defined as net financial debt less 50 percent of the nominal capital 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. As of June 30, 2016, economic debt was €6,274 million (December 31, 2015: €5,609 million). The increase is primarily attributable to the significantly higher pension provisions and similar obligations as a result of the significant reduction in the interest rate. As of June 30, 2016, the leverage factor was 2.7 (December 31, 2015: 2.4).

Due to seasonal influences, net financial debt increased to €2,954 million compared to €2,765 million as of December 31, 2015. The increase is partly attributable to dividend payments to shareholders and non-controlling interests, most of which were made during the first half of the year.

Financing Activities

With a view to the pending maturities in the second half of 2016, Bertelsmann placed a ten-year benchmark bond in April 2016 with an issue volume of €500 million. The bond is listed in Luxembourg and has a fixed coupon of 1.125 percent. Furthermore, in June 2016, as part of a private placement, Bertelsmann also issued a promissory note in the amount of €200 million with a two-year term.

Rating

Bertelsmann has issuer ratings from Moody’s and S&P. 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.

Cash Flow Statement

In the reporting period, Bertelsmann generated cash flow from operating activities of €751 million (H1 2015: €343 million). The Group’s long-term operating free cash flow, adjusted for special items, was €718 million (H1 2015: €434 million). The cash flow from investing activities was €-502 million compared to €-817 million in the same period last year. The deviation results primarily from the funding in the same period last year of the plan assets held under the trusteeship of Bertelsmann Pension Trust e. V. which amounted to €400 million. At €276 million, cash flow from financing activities was below the high level of the previous year (H1 2015: €595 million). Cash and cash equivalents increased to €1,811 million as of June 30, 2016 (December 31, 2015: €1,310 million), primarily as a result of the issuing of bonds.

Group Cash Flow Statement (Summary)  

in € millionsH1 2016H1 2015
Cash flow from operating activities751343
Cash flow from investing activities(502)(817)
Cash flow from financing activities276595
Change in cash and cash equivalents525121
Exchange rate effects and other changes in cash and cash equivalents(24)55
Cash and cash equivalents on 1/11,3101,331
Cash and cash equivalents on 6/301,8111,507
Less cash and cash equivalents included within assets held for sale
Cash and cash equivalents on 6/30 (as per consolidated balance sheet)1,8111,507

Investments

In the first half of 2016, according to the cash flow statement, investments totaled €603 million (H1 2015: €514 million). Investments in intangible assets came to €212 million (H1 2015: €126 million) and were attributable primarily to RTL Group for investments in film rights and to BMG for the acquisition of music catalogs. As in the same period last year, a large portion of the investments in property, plant and equipment, totaling €129 million (H1 2015: €150 million), stemmed from Arvato. The sum of €134 million was invested in financial assets (H1 2015: €165 million). Purchase price payments for consolidated investments (less acquired cash and cash equivalents) totaled €128 million in the reporting period (H1 2015: €73 million) and were primarily attributable to investments in Smartclip and Groupe Cerise.

Balance Sheet

Total assets came to €23.4 billion as of June 30, 2016 (December 31, 2015: €22.9 billion). The increase is primarily attributable to the increase in financial liabilities. Due to reduced interest rates, pension provisions increased significantly to €2.3 billion (December 31, 2015: €1.7 billion). Equity was €9.0 billion compared to €9.4 billion as of December 31, 2015. This resulted in an equity ratio of 38.4 percent (December 31, 2015: 41.2 percent). Due to the interest rate related revaluation of the provisions for defined benefit pension plans, equity declined to €9.0 billion compared to €9.4 billion as of December 31, 2015. This resulted in an equity ratio of 38.4 percent (December 31, 2015: 41.2 percent). Cash and cash equivalents increased to €1,811 million as of June 30, 2016, compared to €1,310 million as of December 31, 2015.

Employees

As of June 30, 2016, Bertelsmann had 114,710 employees worldwide.