Accounting Principles

The Interim Financial Report for Bertelsmann SE & Co. KGaA has been prepared according to Section 37w of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG) and has been subject to a limited review by the Group’s auditor. It complies with International Financial Reporting Standards (IFRS) and the related interpretations (IFRIC) of the IFRS Interpretations Committee (IFRS IC) applicable in the European Union (EU-IFRS) and contains condensed interim consolidated financial statements prepared in accordance with IAS 34 Interim Financial Reporting, including selected explanatory notes. This report was prepared – with the exception of the financial reporting standards applied for the first time in the current financial year – using fundamentally the same accounting and measurement policies as in the Consolidated Financial Statements of December 31, 2015. A detailed description of these policies and the new or revised financial reporting standards and interpretations to be applied from 2016 are presented in the notes to the Consolidated Financial Statements in the 2015 Annual Report.

As of June 30, 2016, the following financial reporting standards have been applied for the first time:

  • Annual Improvements to IFRSs 2010–2012 Cycle (issued in December 2013)
  • Annual Improvements to IFRSs 2012–2014 Cycle (issued in September 2014)
  • Amendments to IFRS 11 Joint Arrangements: Accounting for Acquisitions of Interests in Joint Operations
  • Amendments to IAS 1: Disclosure Initiative
  • Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortization
  • Amendments to IAS 16 and IAS 41: Bearer Plants
  • Amendments to IAS 19: Defined Benefit Plans – Employee Contributions
  • Amendments to IAS 27 Separate Financial Statements: Equity Method in Separate Financial Statements

The first-time application does not have a material impact on the Bertelsmann Group. The Bertelsmann Group has not opted for further early adoption of any additional standards, interpretations or amendments that have been issued but are not yet mandatory.

Scope of Consolidation

The Condensed Interim Consolidated Financial Statements as of June 30, 2016, include Bertelsmann SE & Co. KGaA and all material subsidiaries over which Bertelsmann SE & Co. KGaA is able to exercise control in accordance with IFRS 10. Joint ventures and associates are accounted for using the equity method in accordance with IAS 28. As of June 30, 2016, the scope of consolidation including Bertelsmann SE & Co. KGaA consists of 956 companies (December 31, 2015: 954) with 49 entries and 47 exits in the first half of 2016. This includes 876 (December 31, 2015: 883) fully consolidated companies, of which 763 (December 31, 2015: 758) are wholly owned subsidiaries. In addition, investments in 29 (December 31, 2015: 29) joint ventures and 51 (December 31, 2015: 42) associates are accounted for using the equity method in the Consolidated Financial Statements. A total of 230 (December 31, 2015: 224) companies without significant business operations are excluded from the scope of consolidation due to their negligible importance for the financial position and financial performance of the Bertelsmann Group.

Acquisitions and Disposals

In the first half of 2016, the cash flow from acquisition activities totaled €128 million, of which €108 million relates to new acquisitions during the first half of the year less cash and cash equivalents acquired. The consideration transferred in accordance with IFRS 3 amounted to €144 million taking account of contingent consideration of €6 million. In addition, put options totaling €3 million related to the business combinations were accounted for.

In March 2016, RTL Group acquired an interest of 93.75 percent in Smartclip Holding AG including its five subsidiaries. Smartclip bundles the online video advertising inventory of 700 publishers worldwide, and manages the integration and serving of video advertising to all Internet-connected screens. The company complements RTL Group’s investments in digital advertising sales. The German Federal Cartel Office approved the transaction in April 2016. The consideration transferred amounted to €48 million and was fully paid in cash. The preliminary purchase price allocation resulted in non-tax-deductible goodwill in the amount of €38 million resulting from the skills and market competence of Smartclip’s workforce and the synergies expected. RTL Group holds a put and call option for the remaining non-controlling interests of 6.25 percent exercisable in 2017. The exercise price of the put option is based on a variable component and capped at €200 million on a 100 percent basis. The corresponding amount has been initially recognized as a financial liability at the present value of the redemption amount totaling €3 million with a corresponding reduction in equity. The financial liability subsequently measured at amortized cost remained unchanged as of June 30, 2016. Any further remeasurement of the liability will be recognized in the income statement. Transaction-related costs amounted to less than €1 million and have been recognized in profit or loss.

In May 2016, Gruner + Jahr’s French subsidiary Prisma Media acquired an interest of 100 percent in Groupe Cerise. The company is one of France’s leading digital media groups, primarily due to its video offers. With the acquisition, Gruner + Jahr reinforces the position of Prisma Media in the areas that are strategically important for digital development: video, mobile, technology and social networks. The preliminary consideration transferred amounts to €42 million and was paid completely in cash. The preliminary purchase price allocation resulted in non-tax-deductible goodwill amounting to €32 million, mainly representing synergy potential to be realized by combining existing brands and businesses and strengthening the position in digital advertising markets. Transaction-related costs amounted to less than €1 million and have been recognized in profit or loss.

As of the end of the reporting period, the purchase price allocations for Smartclip and Groupe Cerise have not yet been completed, as the underlying financial information is still being prepared and audited. As a result, changes in the allocation of the purchase price to the individual assets and liabilities are still possible.

In addition, the Bertelsmann Group made several acquisitions in the first half of 2016, none of which was material on a stand-alone basis. In total, the impact of these acquisitions on the Group’s financial position and financial performance was also minor. The other acquisitions resulted in non-taxdeductible goodwill totaling €41 million, which reflects synergy potential. The costs of these transactions amounted to €2 million and have been recognized in profit or loss. The following table shows the fair values of the assets and liabilities of the acquisitions on their dates of initial consolidation based on the currently still preliminary purchase price allocations:

Effects of Acquisitions  

in € millionsSmartclipCeriseOtherTotal
Non-current assets
Goodwill383241111
Other intangible assets9131335
Property, plant and equipment11
Other non-current assets314
Current assets
Inventories88
Trade and other receivables92617
Other current assets11
Cash and cash equivalents111214
 
Liabilities
Financial debt(1)(2)(3)
Other financial and non-financial liabilities(21)(5)(17)(43)
 
Non-controlling interests(1)(1)

Since initial consolidation, all new acquisitions in accordance with IFRS 3 in the first half of 2016 have contributed €22 million to revenue and €0 million to Group profit or loss. If consolidated as of January 1, 2016, they would have contributed €45 million to revenue and €-2 million to Group profit or loss.

After considering the cash and cash equivalents disposed of, the Bertelsmann Group generated cash flows totaling €-4 million from disposals in the first half of 2016. The disposals led to income from deconsolidation of €6 million, which is recognized in “Results from disposals of investments.”

Effects of Disposals  

in € millionsTotal
Non-current assets
Goodwill2
Other intangible assets2
Property, plant and equipment2
Other non-current assets1
Current assets
Inventories6
Other current assets14
Cash and cash equivalents9
 
Liabilities
Provisions for pensions and similar obligations6
Financial debt1
Other financial and non-financial liabilities31

Currency Translation

The following euro exchange rates were used to translate the currencies that are most significant to the Bertelsmann Group.

  Average rateClosing rate
Foreign currency unit per €1 H1 2016H1 20156/30/201612/31/20156/30/2015
Australian dollarAUD1.52211.42581.49291.48971.4550
Canadian dollarCAD1.48401.37681.43841.51161.3839
Chinese renminbiCNY7.29566.93787.37557.06086.9366
British poundGBP0.77880.73240.82650.73400.7114
US dollarUSD1.11611.11521.11021.08871.1189

Additional Disclosures on Financial Instruments

The principles and methods used for the fair value measurement remain unchanged compared to the previous year. Further information about the additional information and disclosures on financial instruments are presented in the notes to the Consolidated Financial Statements in the Annual Report 2015. Only disclosures on financial instruments that are significant to an understanding of the changes in financial position and performance since the end of the last annual reporting period are explained below.

The following hierarchy is used to determine the fair value of financial instruments:

Level 1:
The fair value of the existing financial instruments is determined on the basis of stock exchange listings at the end of the reporting period.

Level 2:
For measuring the fair value of unlisted derivatives, Bertelsmann uses various financial methods reflecting the prevailing market conditions and risks at the respective balance sheet dates. Irrespective of the type of financial instrument, future cash flows are discounted at the end of the reporting period based on the respective market interest rates and interest rate structure curves at the end of the reporting period.

The fair value of forward exchange transactions is calculated using the average spot prices at the end of the reporting period and taking into account forward markdowns and markups for the remaining term of the transactions. The fair value of interest rate derivatives is calculated on the basis of the respective market rates and interest rate structure curves at the end of the reporting period. The fair value of forward commodity transactions is derived from the stock exchange listings published on the balance sheet date. Any incongruities to the standardized stock exchange contracts are reflected through interpolation or additions.

Level 3:
If no observable market data is available, measuring fair values is based primarily on cash flow-based valuation techniques.

The valuation of financial assets and financial liabilities according to level 2 and level 3 requires management to make certain assumptions about the model inputs including cash flows, discount rate and credit risk. In the first half of 2016, no reclassifications were performed between levels 1, 2 and 3.

The option offered in IFRS 13.48 (net risk position) is used for measuring the fair value of financial derivatives. In order to identify the credit exposure from financial derivatives, the respective net position of the fair values with the contractual partners is used as a basis, as these are managed based on a net position in view of their market or credit default risks.

Investments in affiliates and other investments that are classified as available-for-sale within financial assets are measured at cost as they do not have a quoted price on an active market and a reliable estimate of the fair value is not possible. As of June 30, 2016, these financial assets amounted to €293 million (December 31, 2015: €288 million). No plan has been made to sell significant holdings of the other available-for-sale investments in the near future. Of the financial assets measured at cost, most notably the investment in Spring Rain Mobile Health Holdings Inc. and shares in Morningside China TMT Fund I were sold in the first half of 2016. For all other financial assets and financial liabilities, their carrying amount represents a reasonable approximation of fair value.

The market value of the 2001 profit participation certificates with a closing rate of 314.00 percent on the last day of trading in the first half of 2016 on the Frankfurt Stock Exchange was €893 million (December 31, 2015: €903 million with a rate of 317.50 percent) and, correspondingly, €30 million for the 1992 profit participation certificates with a rate of 178.62 percent (December 31, 2015: €29 million with a rate of 172.00 percent). The fair values are based on level 1 of the fair value hierarchy.

In April 2016, Bertelsmann issued a publicly listed bond of €500 million with a term of ten years. In addition, Bertelsmann issued a promissory note in the amount of €200 million with a term of two years in a private placement in June 2016.

On June 30, 2016, the cumulative fair value of the listed bonds totaled €3,902 million (December 31, 2015: €3,272 million) with a nominal volume of €3,786 million (December 31, 2015: €3,286 million) and a carrying amount of €3,761 million (December 31, 2015: €3,266 million). The stock market prices are based on level 1 of the fair value hierarchy. On June 30, 2016, the total carrying amount of the private placements and promissory notes totaled €707 million (December 31, 2015: €507 million) and the total fair value amounted to €762 million (December 31, 2015: €540 million). The fair values of private placements and promissory notes are determined using actuarial methods based on yield curves adjusted for the Group’s credit margin. This credit margin results from the market price for credit default swaps at the end of the respective reporting periods. Fair value is measured on the basis of discount rates ranging from -0.24 percent to 1.57 percent. The fair values of the private placements and promissory notes are based on level 2 of the fair value hierarchy.

Fair Values of Financial Assets Categorized Using the Fair Value Measurement Hierarchy  

in € millionsLevel 1:
Quoted prices
in active markets
Level 2:
Observable
market data
Level 3:
Unobservable
market data
Balance as of
6/30/2016
Financial assets initially recognized at fair value through profit or loss1111
Available-for-sale financial assets1013041
Primary and derivative financial assets held for trading88593
Derivatives with hedge relation5050
1015035195

Financial Assets Measured at Fair Value Based on Level 3  

in € millionsFinancial
assets initially
recognized at fair
value through
profit or loss
Available-for-sale
financial assets
Primary and
derivative financial
assets held for
trading
Derivatives with hedge relationTotal
Balance as of 1/1/201630636
Total gain (+) or loss (-)(1)(1)
– in profit or loss(1)(1)
– in other comprehensive income
Transfers from “Investments accounted for using the equity method”
Purchases
Issues
Sales/settlements
Transfers out of/into level 3
Balance as of 6/30/201630535
Gain (+) or loss (-) for assets still held at the end of the reporting period(1)(1)

Fair Values of Financial Liabilities Categorized Using the Fair Value Measurement Hierarchy  

in € millionsLevel 1:
Quoted prices
in active markets
Level 2:
Observable
market data
Level 3:
Unobservable
market data
Balance as of
6/30/2016
Financial liabilities initially recognized at fair value through profit or loss4646
Primary and derivative financial liabilities held for trading6060
Derivatives with hedge relation66
6646112

Financial Liabilities Measured at Fair Value Based on Level 3  

in € millionsFinancial
liabilities initially
recognized at fair
value through
profit or loss
Primary and
derivative
financial liabilities
held for trading
Derivatives with
hedge relation
Total
Balance as of 1/1/20164545
Total gain (-) or loss (+)
– in profit or loss
– in other comprehensive income
Purchases44
Issues
Settlements(3)(3)
Transfers out of/into level 3
Balance as of 6/30/20164646
Gain (-) or loss (+) for liabilities still held at the end of the reporting period

Income Taxes

Tax expenses for the first half of 2016 were calculated in accordance with IAS 34 using the average annual tax rate expected for the whole of 2016, which is calculated at 34.6 percent according to Bertelsmann management’s current estimation. In addition, non-recurring tax items have been recognized in current tax and deferred tax, which resulted in a lower tax rate in the income statement.

Other Information

As a result of seasonal influences on the divisions, higher revenues and a higher operating result tend to be expected in the second half of the year compared to the first half of the year. The higher revenues in the second half of the year are primarily due to the increasing demand during the year-end holiday season, in particular in advertising-driven businesses and in the publishing business as well as to the customary seasonality in the music business.

The results from disposals of investments are attributable to several transactions conducted in the Bertelsmann Investments division, mainly from the sale of the investment in Spring Rain Mobile Health Holdings Inc. and shares in Morningside China TMT Fund I.

As a result of the decrease in the discount rate for measuring provisions for pensions, actuarial losses amounting to €569 million before related tax effects were recognized in the item “Remeasurement component of defined benefit plans.”

Earnings after taxes from discontinued operations of €3 million in the previous year comprised follow-on effects related to the disposal of the former Direct Group division.

As of June 30, 2016, the cash-generating units Fremantle Media and StyleHaul have been tested for impairment in accordance with IAS 36. Taking into account the development of Fremantle Media over the first six months in the financial year 2016, its business plan has been revised moderately upward. This takes into account the strengthening of the production business through a number of talent deals and recent acquisitions and the continuing strength of Fremantle Media’s main franchises. Accordingly, despite the continued pricing pressure within the overall content business, Fremantle Media expects to increase its EBITA margin slightly over the life of the business plan. The recoverable amount was determined using the value in use with a long-term growth rate of 2.5 percent (December 31, 2015: 2.5 percent) and a discount rate of 7.1 percent (December 31, 2015: 7.4 percent).

As of June 30, 2016, the recoverable amount exceeds the carrying amount on the level of Fremantle Media by €374 million (December 31, 2015: €189 million). In the event of an increase in the discount rate by 1.3 percentage points, a reduction in the annual revenue of 1.9 percent or a reduction in the EBITDA margin by 1.7 percentage points, the recoverable amount is lower than the carrying amount.

The significant increase of video views was not fully reflected in the revenue growth of StyleHaul due to the delayed launch of certain diversification revenue streams, mostly on content revenue, and the lower revenue per thousand impressions (“RPM”). The recoverable amount was determined using the value in use with a long-term growth rate of 2.0 percent (December 31, 2015: 2.0 percent) and a discount rate of 13.0 percent (December 31, 2015: 13.0 percent). As of June 30, 2016, the recoverable amount exceeds the carrying amount on the level of StyleHaul by €10 million (December 31, 2015: €11 million). In the event of an increase in the discount rate by 0.7 percentage points, a reduction in the annual revenue of 1.3 percent, or a reduction in the EBITDA margin by 1.6 percentage points, the recoverable amount is lower than the carrying amount.

Notes on Segment Reporting

At the beginning of the financial year 2016, the strategic growth segments BMG and Education as well as the fund activities of Corporate Investments were split into three independent divisions: BMG, Bertelsmann Education Group and Bertelsmann Investments. BMG is an international music company. The Bertelsmann Education Group division comprises the growth businesses and high-quality education offerings. Bertelsmann Investments comprises the funds Bertelsmann Digital Media Investments (BDMI), Bertelsmann Asia Investments (BAI), Bertelsmann Brazil Investments (BBI) and Bertelsmann India Investments (BII), investing in promising businesses. In addition, since January 1, 2016, the Bertelsmann Printing Group division has bundled the Group’s offset and gravure printing activities. It includes Mohn Media, GGP Media and Vogel Druck, which were previously considered part of the Arvato division, the gravure activities of Prinovis in Germany and the United Kingdom previously operating under Be Printers, and the offset and digital printers of Be Printers in the United States. The new division also includes additional businesses that were previously allocated to the Arvato division, including RTV Media Group, the lettershop business Campaign and the storage media replication business Sonopress. Furthermore, Medienfabrik, a company that was previously allocated to the Arvato division until December 31, 2015, has been part of the Gruner + Jahr division since January 1, 2016.

As of January 1, 2016, the Bertelsmann Executive Board manages and monitors the three new divisions separately so that, since 2016, internal reporting and external segment reporting reflect eight operating reportable segments: RTL Group, Penguin Random House, Gruner + Jahr, BMG, Arvato, Bertelsmann Printing Group, Bertelsmann Education Group and Bertelsmann Investments. The figures from the previous year were adjusted accordingly in this report.

Reconciliation of Segments’ EBIT to Group Profit or Loss  

in € millionsH1 2016H1 2015
Operating EBITDA of divisions1,1601,099
Corporate(43)(35)
Consolidation(6)(1)
Amortization/depreciation, impairment losses and reversals of intangible assets and property, plant and equipment309293
Adjustments on amortization/depreciation, impairment losses and reversals of intangible assets and property, plant and equipment included in special items(3)(1)
Special items101
EBIT from continuing operations805670
Financial result(117)(119)
Earnings before taxes from continuing operations688551
Income tax expense(206)(156)
Earnings after taxes from continuing operations482395
Earnings after taxes from discontinued operations3
Group profit or loss482398

Events After the Reporting Period

No events of special importance occurred after the reporting period that could have a material impact on the financial position and results of operations of the Bertelsmann Group.