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 limited to the defined maximum of 2.5. As of December 31, 2016, the leverage factor of Bertelsmann was 2.5, slightly above the previous year’s value (December 31, 2015: 2.4) but not over its self-imposed maximum value of 2.5 (see further explanation in the “Alternative Performance Measures” section).
As of December 31, 2016, economic debt increased to €5,913 million from €5,609 million in the previous year, despite a reduction in net financial debt. In particular, pension provisions increased due to a lower discount interest rate, while the net present value of the operating leases increased due to a consolidation of locations at Penguin Random House in the United States. The pension provisions and similar obligations amounted to €1,999 million as of December 31, 2016 (December 31, 2015: €1,709 million). The net financial debt fell to €2,625 million (previous year: €2,765 million).
Another financial target is the coverage ratio. This is calculated as the ratio of operating EBITDA (after modifications) to financial result, which is used to determine the leverage factor and is supposed to be above 4. In the reporting period, the coverage ratio was 9.7 (previous year: 10.1). The Group’s equity ratio was 41.6 percent (December 31, 2015: 41.2 percent), which remains significantly above the selfimposed minimum of 25 percent.
|Leverage factor: Economic debt/Operating EBITDA1)||≤ 2.5||2.5||2.4|
|Coverage ratio: Operating EBITDA/financial result1)||> 4.0||9.7||10.1|
|Equity ratio: Equity as a ratio to total assets (in percent)||≥ 25.0||41.6||41.2|
|1) After modifications.|
In April 2016, Bertelsmann placed a bond with a 10-year term and an issue volume of €500 million. The bond, which is listed in Luxembourg, has a fixed 1.125 percent coupon. 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. The proceeds from the placements were used to repay the bond, which became due in September 2016. As of December 31, 2016, the carrying amounts of bonds and promissory notes totaled €3.7 billion compared to €3.8 billion as of December 31, 2015 (see also note 22 “Financial debt”).
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.
As well as its existing liquidity, the Bertelsmann Group has access to liquidity via a syndicated loan with a term that in 2016 was extended by one year until 2021. This forms the backbone of the strategic credit reserve; Bertelsmann can utilize this to draw up to €1.2 billion of revolving funds in euros, US dollars and pounds sterling.
In the reporting period, Bertelsmann generated net cash from operating activities of €1,954 million (previous year: €1,600 million). The Group’s long-term operating free cash flow adjusted for non-recurring items was €1,799 million (previous year: €1,559 million), and the cash conversion rate was 93 percent (previous year: 83 percent); see also “Broadly Defined Performance Indicators” section. The cash flow from investing activities was €-1,081 million (previous year: €‑1,785 million). This included investments in intangible assets, property, plant and equipment and financial assets of €‑962 million (previous year: €‑1,093 million). The purchase price payments for consolidated investments (net of acquired cash and cash equivalents) were €‑278 million (previous year: €-166 million). Proceeds from the sale of subsidiaries and other business units and disposal of other non-current assets were €192 million (previous year: €163 million). Cash flow from financing activities was €‑793 million (previous year: €122 million). Dividends paid to the shareholders of Bertelsmann SE & Co. KGaA remained unchanged at €‑180 million (previous year: €‑180 million). Dividends to non-controlling interests and further payments to partners in partnerships came to €‑388 million (previous year: €‑450 million). As of December 31, 2016, Bertelsmann had cash and cash equivalents of €1.4 billion (previous year: €1.3 billion).
|in € millions||2016||2015|
|Cash flow from operating activities||1,954||1,600|
|Cash flow from investing activities||(1,081)||(1,785)|
|Cash flow from financing activities||(793)||122|
|Change in cash and cash equivalents||80||(63)|
|Exchange rate effects and other changes in cash and cash equivalents||(14)||42|
|Cash and cash equivalents on 1/1||1,310||1,331|
|Cash and cash equivalents on 12/31||1,376||1,310|
|Less cash and cash equivalents included within assets held for sale||(3)||–|
|Cash and cash equivalents on 12/31 (according to the consolidated balance sheet)||1,373||1,310|
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-balancesheet liabilities increased year on year. The off-balance-sheet liabilities in place as of December 31, 2016, 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.
Total investments including financial debt acquired of €6 million (previous year: €41 million) amounted to €1,244 million in the financial year 2016 (previous year: €1,281 million). Investments according to the cash flow statement amounted to €1,240 million (previous year: €1,259 million). As in previous years, the majority of the €326 million investment in property, plant and equipment (previous year: €297 million) stemmed from Arvato. Investments in intangible assets came to €388 million (previous year: €349 million) and were primarily attributable to BMG for the acquisition of music catalogs and to RTL Group for investments in film rights. The sum of €248 million was invested in financial assets (previous year: €447 million). These include, in particular, the investments of Bertelsmann Investments. Purchase price payments for consolidated investments (less acquired cash and cash equivalents) totaled €278 million in the reporting period (previous year: €166 million). These include, in particular, the acquisition of shares in Smartclip, APS and Groupe Cerise.
|in € millions||2016||2015|
|Penguin Random House||36||43|
|Gruner + Jahr||112||55|
|Bertelsmann Printing Group||49||40|
|Bertelsmann Education Group||175||270|
|Total investments by division||1,222||1,255|
Total assets amounted to €23.8 billion as of December 31, 2016 (previous year: €22.9 billion). Cash and cash equivalents increased to €1.4 billion (previous year: €1.3 billion). Equity increased to €9.9 billion (previous year: €9.4 billion). This resulted in an equity ratio of 41.6 percent (previous year: 41.2 percent). Equity attributable to Bertelsmann SE & Co. KGaA shareholders was €7.9 billion (previous year: €7.5 billion). Provisions for pensions and similar obligations increased to €1,999 million (previous year: €1,709 million) due to a reduction in the interest rate. Gross financial debt only changed slightly to €3,998 million compared to €4,075 million as of December 31, 2015, due to the taking up and repayment of long-term debt of a comparable amount as reported in the “Financing Activities” section. Apart from that, the balance sheet structure remained largely unchanged from the previous year.
Profit participation capital had a par value of €301 million as of December 31, 2016, 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, 2016 (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 2016 was 310.00 percent in January; their highest was 335.02 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 and 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 2016.
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 2016 was 7.09 percent (previous year: 6.99 percent), the payout on the 1992 profit participation certificates for the financial year 2016 will be 8.09 percent of their notional value (previous year: 7.99 percent).
The payout distribution date for both profit participation certificates is expected to be May 15, 2017. 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.