Not individually impaired as of the reporting date and past due by: | |||||||
---|---|---|---|---|---|---|---|
in € millions | Neither impaired nor past due on the reporting date | < 1 month | 1 to 3 months | 3 to 6 months | 6 to 12 months | > 12 months | Gross value of accounts receivable individually impaired |
Loans | 71 | – | – | – | – | – | 48 |
Securities and financial assets | 17 | – | – | – | – | – | 4 |
Trade receivables | 2,508 | 412 | 142 | 52 | 27 | 22 | 184 |
Receivables from participations | 24 | 1 | – | – | – | 1 | 4 |
Other selected receivables | 722 | 16 | 13 | 1 | 2 | 3 | 37 |
Balance as of 12/31/2016 | 3,342 | 429 | 155 | 53 | 29 | 26 | 277 |
Loans | 42 | – | – | – | – | – | 45 |
Securities and financial assets | 18 | – | – | – | – | – | 4 |
Trade receivables | 2,451 | 529 | 145 | 75 | 33 | 39 | 235 |
Receivables from participations | 33 | 2 | 2 | 1 | – | – | 4 |
Other selected receivables | 520 | 8 | 3 | 1 | 1 | 14 | 28 |
Balance as of 12/31/2015 | 3,064 | 539 | 150 | 77 | 34 | 53 | 316 |
No impairment losses were recognized for unsettled receivables not yet due as of the end of the reporting period, as there was no indication of default.
in € millions | Balance as of 1/1 | Additions | Usage | Reversal | Change of consolidation scope | Exchange rate effect | Balance as of 12/31 |
---|---|---|---|---|---|---|---|
Loans | (46) | (6) | – | 2 | 2 | – | (48) |
Trade receivables | (242) | (62) | 12 | 88 | 4 | 3 | (197) |
Receivables from participations | (3) | – | – | – | – | – | (3) |
Sundry financial receivables | (28) | (17) | 1 | 2 | – | – | (42) |
Total 2016 | (319) | (85) | 13 | 92 | 6 | 3 | (290) |
Loans | (100) | (7) | 59 | 1 | 2 | (1) | (46) |
Trade receivables | (226) | (65) | 9 | 57 | (6) | (11) | (242) |
Receivables from participations | – | (3) | – | – | – | – | (3) |
Sundry financial receivables | (49) | (3) | 17 | 7 | – | – | (28) |
Total 2015 | (375) | (78) | 85 | 65 | (4) | (12) | (319) |
The carrying amount of all receivables, loans and securities constitutes the Bertelsmann Group’s maximum default risk.
The following table presents the contractually fixed undiscounted Cash Flows of the financial liabilities for settlement. The figures are based on undiscounted cash flows at the earliest date at which the Bertelsmann Group can be held liable for payment.
Undiscounted cash flows | |||||
---|---|---|---|---|---|
in € millions | Carrying amount | Up to 1 year | 1 to 5 years | Over 5 years | Total |
Profit participation capital | 413 | – | – | 413 | 413 |
Fixed interest bonds and promissory notes | 3,584 | – | 360 | 3,250 | 3,610 |
Floating rate bonds and promissory notes | 100 | – | 100 | – | 100 |
Liabilities to banks | 103 | 91 | 12 | – | 103 |
Lease liabilities | 51 | 9 | 48 | – | 57 |
Other financial debt | 160 | 136 | 19 | 5 | 160 |
Trade payables | 3,764 | 3,557 | 184 | 23 | 3,764 |
Liabilities to participations | 14 | 14 | – | – | 14 |
Derivative financial instruments | 66 | 56 | 10 | – | 66 |
Sundry financial payables | 855 | 680 | 122 | 53 | 855 |
Balance as of 12/31/2016 | 9,110 | 4,543 | 855 | 3,744 | 9,142 |
Profit participation capital | 413 | – | – | 413 | 413 |
Fixed interest bonds and promissory notes | 3,673 | 786 | 160 | 2,750 | 3,696 |
Floating rate bonds and promissory notes | 100 | – | 100 | – | 100 |
Liabilities to banks | 94 | 82 | 12 | – | 94 |
Lease liabilities | 64 | 10 | 62 | – | 72 |
Other financial debt | 144 | 122 | 17 | 5 | 144 |
Trade payables | 3,746 | 3,563 | 171 | 12 | 3,746 |
Liabilities to participations | 8 | 8 | – | – | 8 |
Derivative financial instruments | 34 | 28 | 6 | – | 34 |
Sundry financial payables | 863 | 677 | 113 | 73 | 863 |
Balance as of 12/31/2015 | 9,139 | 5,276 | 641 | 3,253 | 9,170 |
Current cash outflows from financial obligations are offset by planned cash inflows from receivables and other financial assets. To cover current cash flows, Bertelsmann SE & Co. KGaA also has adequate financial reserves in the amount of the cash and cash equivalents and unutilized credit facilities in place at the end of the reporting period.
The following table presents the remaining terms of the contractual amounts to be exchanged in a derivative financial instrument for which gross cash flows are exchanged:
Remaining term of liabilities | |||
---|---|---|---|
in € millions | Up to 1 year | 1 to 5 years | Over 5 years |
Cash outflow | (2,256) | (127) | – |
Cash inflow | 2,195 | 118 | – |
Balance as of 12/31/2016 | (61) | (9) | – |
Cash outflow | (1,550) | (160) | – |
Cash inflow | 1,520 | 155 | – |
Balance as of 12/31/2015 | (30) | (5) | – |
Based on the remaining contractual terms of its financial liabilities at the end of the reporting period, the Bertelsmann Group will have to make the following future interest payments:
Undiscounted interest payments | ||||
---|---|---|---|---|
in € millions | Up to 1 year | 1 to 5 years | Over 5 years | Total |
Profit participation capital | 45 | 181 | 45 | 271 |
Bonds and promissory notes | 85 | 332 | 290 | 707 |
Liabilities to banks | 3 | 1 | – | 4 |
Lease liabilities | 2 | 5 | – | 7 |
Other financial debt | 3 | 3 | 1 | 7 |
Balance as of 12/31/2016 | 138 | 522 | 336 | 996 |
Profit participation capital | 45 | 181 | 90 | 316 |
Bonds and promissory notes | 116 | 313 | 338 | 767 |
Liabilities to banks | 4 | 1 | – | 5 |
Lease liabilities | 2 | 7 | – | 9 |
Other financial debt | 3 | 1 | – | 4 |
Balance as of 12/31/2015 | 170 | 503 | 428 | 1,101 |
in € millions | Category in accordance with IAS 39 | Balance as of 12/31/2016 | Category in accordance with IAS 39 | Balance as of 12/31/2015 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Loans and receivables | Available-for-sale | Financial assets initially recognized at fair value through profit or loss | Financial assets held for trading | Derivatives with hedge relation | Loans and receivables | Available-for-sale | Financial assets initially recognized at fair value through profit or loss | Financial assets held for trading | Derivatives with hedge relation | |||||
Measurement | At amortized cost | At cost | Fair value recognized in equity | Fair value recognized in profit or loss | Fair value recognized in profit or loss | At amortized cost | At cost | Fair value recognized in equity | Fair value recognized in profit or loss | Fair value recognized in profit or loss | ||||
Loans | 71 | – | – | – | – | – | 71 | 41 | – | – | – | – | – | 41 |
Investments in affiliates | – | 3 | 12 | – | – | – | 15 | – | 14 | – | – | – | – | 14 |
Other investments | – | 54 | 366 | – | – | – | 420 | – | 274 | 38 | – | – | – | 312 |
Securities and financial assets | – | 1 | 3 | 13 | – | – | 17 | 1 | 6 | 1 | 10 | – | – | 18 |
Derivative financial instruments | – | – | – | – | 68 | 63 | 131 | – | – | – | – | 81 | 52 | 133 |
Trade receivables | 3,150 | – | – | – | – | – | 3,150 | 3,265 | – | – | – | – | – | 3,265 |
Receivables from participations | 27 | – | – | – | – | – | 27 | 39 | – | – | – | – | – | 39 |
Sundry financial receivables | 752 | – | – | – | – | – | 752 | 549 | – | – | – | – | – | 549 |
Cash | 1,192 | – | – | – | – | – | 1,192 | 1,209 | – | – | – | – | – | 1,209 |
Other securities < 3 months | 181 | – | – | – | – | – | 181 | 101 | – | – | – | – | – | 101 |
5,373 | 58 | 381 | 13 | 68 | 63 | 5,956 | 5,205 | 294 | 39 | 10 | 81 | 52 | 5,681 |
Other investments include mainly the minority stakes in other entities and so-called fund-in-fund investments purchased by the Bertelsmann Investments division. As a rule, these financial instruments are measured at fair value, and the gains and losses from fluctuations in fair value are recognized in other comprehensive income with deferred taxes taken into consideration. The fair value measurement of fund-infund investments is based on the valuations of the external management as presented in regular reporting and taking into account a fungibility discount. When possible, measuring fair value of minority stakes in other entities is based, on observable prices obtained as part of the most recently implemented qualified financing rounds taking into account life and development cycles of the entity.
Certain 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. No plan has been made to sell significant holdings of the other available-for-sale investments in the near future. For all other financial assets and financial liabilities, their carrying amount represents a reasonable approximation of fair value.
in € millions | Category in accordance with IAS 39 | Balance as of 12/31/2016 | Category in accordance with IAS 39 | Balance as of 12/31/2015 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Financial liabilities | Financial liabilities initially recognized at fair value through profit or loss | Financial liabilities held for trading | Derivatives with hedge relation | Payables out of scope of IAS 39 | Financial Liabilities | Financial liabilities initially recognized at fair value through profit or loss | Financial liabilities held for trading | Derivatives with hedge relation | Payables out of scope of IAS 39 | |||
Measurement | At amortized cost | Fair value recognized in profit or loss | Fair value recognized in profit or loss | At amortized cost | Fair value recognized in profit or loss | Fair value recognized in profit or loss | ||||||
Profit participation capital | 413 | – | – | – | – | 413 | 413 | – | – | – | – | 413 |
Bonds and promissory notes | 3,684 | – | – | – | – | 3,684 | 3,773 | – | – | – | – | 3,773 |
Liabilities to banks | 103 | – | – | – | – | 103 | 94 | – | – | – | – | 94 |
Lease liabilities | – | – | – | – | 51 | 51 | – | – | – | – | 64 | 64 |
Other financial debt | 160 | – | – | – | – | 160 | 144 | – | – | – | – | 144 |
Trade payables | 3,764 | – | – | – | – | 3,764 | 3,746 | – | – | – | – | 3,746 |
Liabilities to participations | 14 | – | – | – | – | 14 | 8 | – | – | – | – | 8 |
Derivative financial instruments | – | – | 63 | 3 | – | 66 | – | – | 29 | 5 | – | 34 |
Sundry financial payables | 807 | 48 | – | – | – | 855 | 818 | 45 | – | – | – | 863 |
8,945 | 48 | 63 | 3 | 51 | 9,110 | 8,996 | 45 | 29 | 5 | 64 | 9,139 |
in € millions | Level 1: Quoted prices in active markets | Level 2: Observable market data | Level 3: Unobservable market data | Balance as of 12/31/2016 | ||
---|---|---|---|---|---|---|
Financial assets initially recognized at fair value through profit or loss | – | 13 | – | 13 | ||
Available-for-sale financial assets | 9 | 1 | 371 | 381 | ||
Primary and derivative financial assets held for trading | – | 65 | 3 | 68 | ||
Derivatives with hedge relation | – | 63 | – | 63 | ||
9 | 142 | 374 | 525 |
in € millions | Level 1: Quoted prices in active markets | Level 2: Observable market data | Level 3: Unobservable market data | Balance as of 12/31/2015 | |
---|---|---|---|---|---|
Financial assets initially recognized at fair value through profit or loss | – | 10 | – | 10 | |
Available-for-sale financial assets | 8 | 1 | 30 | 39 | |
Primary and derivative financial assets held for trading | – | 75 | 6 | 81 | |
Derivatives with hedge relation | – | 52 | – | 52 | |
8 | 138 | 36 | 182 |
It is possible to allocate the financial instruments measured at fair value in the balance sheet to the three levels of the fair value hierarchy by category based on the table “Carrying Amounts and Measurement Methods by Measurement Category.”
in € millions | Available-for-sale financial assets | Primary and derivative financial assets held for trading | Total | |
---|---|---|---|---|
Balance as of 1/1/2016 | 30 | 6 | 36 | |
Total gain (+) or loss (-) | – | (3) | (3) | |
– in profit or loss | – | (3) | (3) | |
– in other comprehensive income | – | – | – | |
Purchases | 2 | – | 2 | |
Transfers out of/into level 3 (including first-time classification on level 3) | 339 | – | 339 | |
Balance as of 12/31/2016 | 371 | 3 | 374 | |
Gain (+) or loss (-) for assets still held at the end of the reporting period | – | (3) | (3) |
in € millions | Available-for- sale financial assets | Primary and derivative financial assets held for trading | Total | |
---|---|---|---|---|
Balance as of 1/1/2015 | 34 | – | 34 | |
Total gain (+) or loss (-) | (5) | 6 | 1 | |
– in profit or loss | – | 6 | 6 | |
– in other comprehensive income | (5) | – | (5) | |
Purchases | 1 | – | 1 | |
Transfers out of/into level 3 (including first-time classification on level 3) | – | – | – | |
Balance as of 12/31/2015 | 30 | 6 | 36 | |
Gain (+) or loss (-) for assets still held at the end of the reporting period | – | 6 | 6 |
In the financial year 2016, various investments held by the Bertelsmann Investments division were recognized at fair value for the first time (further details are presented in note 13 “Other Financial Assets”). The difference between the carrying amount, which generally equals the acquisition costs, and fair value was recognized in equity under other comprehensive income. The addition of fair value to level 3 is shown in the table above.
in € millions | Level 1: Quoted prices in active markets | Level 2: Observable market data | Level 3: Unobservable market data | Balance as of 12/31/2016 |
---|---|---|---|---|
Financial liabilities initially recognized at fair value through profit or loss | – | – | 48 | 48 |
Primary and derivative financial liabilities held for trading | – | 63 | – | 63 |
Derivatives with hedge relation | – | 3 | – | 3 |
– | 66 | 48 | 114 |
in € millions | Level 1: Quoted prices in active markets | Level 2: Observable market data | Level 3: Unobservable market data | Balance as of 12/31/2015 |
---|---|---|---|---|
Financial liabilities initially recognized at fair value through profit or loss | – | – | 45 | 45 |
Primary and derivative financial liabilities held for trading | – | 29 | – | 29 |
Derivatives with hedge relation | – | 5 | – | 5 |
– | 34 | 45 | 79 |
in € millions | Financial liabilities initially recognized at fair value through profit or loss | Total |
---|---|---|
Balance as of 1/1/2016 | 45 | 45 |
Total gain (-) or loss (+) | (12) | (12) |
– in profit or loss | (12) | (12) |
– in other comprehensive income | – | – |
Purchases | 22 | 22 |
Issues | – | – |
Settlements | (7) | (7) |
Transfers out of/into level 3 | – | – |
Balance as of 12/31/2016 | 48 | 48 |
Gain (-) or loss (+) for liabilities still held at the end of the reporting period | (5) | (5) |
in € millions | Financial liabilities initially recognized at fair value through profit or loss | Total |
---|---|---|
Balance as of 1/1/2015 | 43 | 43 |
Total gain (-) or loss (+) | (2) | (2) |
– in profit or loss | (4) | (4) |
– in other comprehensive income | 2 | 2 |
Purchases | 5 | 5 |
Settlements | (1) | (1) |
Transfers out of/into level 3 | – | – |
Balance as of 12/31/2015 | 45 | 45 |
Gain (-) or loss (+) for liabilities still held at the end of the reporting period | – | – |
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 at the end of the reporting period. 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. As a rule, qualified financing rounds are used for minority stakes in the Bertelsmann Investments division.
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, as well as the life and development cycle of start-up investments. During the financial year 2016, no reclassifications were performed between levels 1, 2 and 3.
in € millions | Loans and receivables | Available- for-sale financial assets | Financial assets initially recognized at fair value through profit or loss | Financial liabilities at amortized cost | Financial liabilities initially recognized at fair value through profit or loss | Derivatives with hedge relation | Financial instruments held for trading | Other currency translation differences |
---|---|---|---|---|---|---|---|---|
From dividends | – | 14 | – | – | – | – | – | – |
From interest | 9 | – | – | (117) | – | – | (3) | – |
From impairment | 5 | (18) | – | – | – | – | – | – |
From fair value measurement | – | – | – | – | 12 | 4 | (3) | – |
From currency translation differences | – | – | – | – | – | – | 39 | (29) |
From disposal/derecognition | (29) | 72 | – | 23 | – | – | – | – |
Net income 2016 | (15) | 68 | – | (94) | 12 | 4 | 33 | (29) |
From dividends | – | 17 | – | – | – | – | – | – |
From interest | 12 | – | – | (123) | – | – | (2) | – |
From impairment | (17) | (12) | – | – | – | – | – | – |
From fair value measurement | – | – | – | – | 4 | 1 | 6 | – |
From currency translation differences | – | – | – | – | – | – | (97) | 91 |
From disposal/derecognition | (20) | 23 | – | 12 | – | – | – | – |
Net income 2015 | (25) | 28 | – | (111) | 4 | 1 | (93) | 91 |
Other currency translation differences consist of the exchange rate effects of the “Loans and receivables” and “Financial liabilities at amortized cost” categories.
Financial assets and liabilities are offset on the balance sheet if master netting agreements or similar agreements allow the Bertelsmann Group and the counterparty to reach settlement on a net basis. Settlement on a net basis is thus legally valid both as part of ordinary business activities and also in the event of payment default by one of the parties. In addition, Bertelsmann purchases financial derivatives that do not meet the criteria for offsetting on the balance sheet as future events determine the right to offset. As in the previous year, in general, the requirements for offsetting the financial instruments reported on the balance sheet are not met so that no material offsetting was carried out as of December 31, 2016.
Bertelsmann uses standard market financial derivatives, primarily unlisted (OTC) instruments. These include, in particular, forward agreements, currency swaps, currency options, interest rate swaps and individual commodities forwards. Transactions are entered into solely with banks with a high credit Rating. As a rule, the Central Financial Department’s transactions are only performed with a group of banks approved by the Executive Board. The nominal volume is the total of all underlying buying and selling amounts of the respective transactions.
The majority of the financial derivatives at the end of the reporting period (nominal volume €3,682 million) are used to hedge against exchange rate risks from intercompany financing activities. These financial derivatives account for a total of €2,144 million (58 percent) as of the end of the reporting period. A total of €1,538 million (42 percent) is due to financial derivatives used to hedge currency risks from operating business as of the end of the reporting period. Financial derivatives are also used to hedge against interest rate risks from cash and cash equivalents and financing. No financial derivatives were purchased for speculative purposes.
All relationships between hedging instruments and hedged items in addition to its risk management objectives and strategies in connection with the various hedges are documented. This method includes linking all derivatives used for hedging purposes to the underlying assets, liabilities, firm commitments and forecasted transactions. Furthermore, the Bertelsmann Group assesses and documents the degree to which changes in the fair values or cash flows of hedged items are effectively offset by changes in the corresponding hedging instruments, both when the hedges are initiated and on an ongoing basis.
12/31/2016 | ||||||||
---|---|---|---|---|---|---|---|---|
Nominal volume | Fair values | |||||||
in € millions | < 1 year | 1 to 5 years | > 5 years | Total | ||||
Currency derivatives | ||||||||
Forward contracts and currency swaps | 2,942 | 699 | 41 | 3,682 | 62 | |||
Interest rate derivatives | ||||||||
Interest rate swaps | – | – | – | – | – | |||
Other derivative financial instruments | – | – | – | – | 3 | |||
2,942 | 699 | 41 | 3,682 | 65 |
12/31/2015 | ||||||||
---|---|---|---|---|---|---|---|---|
Nominal volume | Fair values | |||||||
in € millions | < 1 year | 1 to 5 years | > 5 years | Total | ||||
Currency derivatives | ||||||||
Forward contracts and currency swaps | 3,149 | 516 | – | 3,665 | 94 | |||
Interest rate derivatives | ||||||||
Interest rate swaps | 52 | – | – | 52 | (1) | |||
Other derivative financial instruments | 7 | – | – | 7 | 6 | |||
3,208 | 516 | – | 3,724 | 99 |
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. Currency forwards are used to hedge the exchange rate risk relating to the purchase of program rights and output deals for the TV business. Bertelsmann hedges between 80 and 100 percent of the future cash flows from the purchase of program rights in foreign currency, which represent a fixed obligation (within one year) or a future transaction with a high probability of occurrence, and between 10 and 80 percent of the longer-term (two to five years) transactions expected in the future under output deals. The derivatives used for this purpose are recognized as hedging instruments in connection with cash flow hedges. The effective portion of changes in the fair value of cash flow hedges is recognized in other comprehensive income until the effects of the hedged underlying transaction affect profit or loss or until a basis adjustment occurs. In the financial year 2016, changes in the fair value of cash flow hedges amounted to €14 million (previous year: €34 million) related to previous-year hedging relationships and €25 million (previous year: €2 million) related to new hedging relationships. The amount of €-33 million relating to other comprehensive income (previous year: €-26 million) was reclassified to the income statement. These are amounts before tax. The portion remaining in other comprehensive income at December 31, 2016, will thus mainly impact the income statement in the next years. The ineffective portion of the cash flow hedges in the amount of €5 million (previous year: €3 million) is recognized under the items “Other financial expenses” and “Other financial income.”
The following table provides an overview of the carrying amounts of the derivative financial instruments, which correspond to their fair values. A distinction is made between derivatives that are included in an effective hedging relationship in accordance with IAS 39 and those that are not.
in € millions | Carrying amount as of 12/31/2016 | Carrying amount as of 12/31/2015 |
---|---|---|
Assets | ||
Forward contracts and currency swaps | ||
– without hedge relation | 65 | 75 |
– in connection with cash flow hedges | 63 | 52 |
Interest rate swaps | ||
– without hedge relation | – | – |
– in connection with cash flow hedges | – | – |
Other derivative financial instruments without hedge relation | 3 | 6 |
Equity and liabilities | ||
Forward contracts and currency swaps | ||
– without hedge relation | 63 | 28 |
– in connection with cash flow hedges | 3 | 5 |
Interest rate swaps | ||
– without hedge relation | – | 1 |
– in connection with cash flow hedges | – | – |
Other derivative financial instruments without hedge relation | – | – |
The Bertelsmann Group is exposed to various forms of financial risk through its international business operations. Above all, this includes the effects of exchange and interest rate movements. Bertelsmann’s risk management activities are designed to effectively mitigate these risks.
The Executive Board establishes basic risk management policy, outlining general procedures for hedging currency and interest rate risk and the utilization of derivative financial instruments. The Corporate Treasury and Finance Department advises subsidiaries on operating risk and hedges risks using derivative financial instruments as necessary. However, subsidiaries are not obliged to use the services provided by this department for their operating risks. Some subsidiaries, such as RTL Group in particular, have their own finance departments. They report their hedge transactions to the Corporate Treasury and Finance Department each quarter. Further information on financial market risks and financial risk management is presented in the Combined Management Report.
Bertelsmann is exposed to exchange rate risk in various currencies. Its subsidiaries are advised, but not obliged, to hedge themselves against exchange rate risks in the local reporting currency by signing forward agreements with banks that have a high credit rating. Loans within the Bertelsmann Group that are subject to exchange rate risk are hedged using derivatives.
A number of subsidiaries are based outside the eurozone. The resulting translation risk is managed through the relationship of economic financial debt to opeRating EBITDA of key currency areas. Over the long term, the Group aims to achieve a reasonable relationship between financial debt and results of operations. Bertelsmann’s focus is on the maximum Leverage Factor permitted for the Group.
There are interest rate risks for interest-bearing assets and financial debt. Interest rate risk in the Bertelsmann Group is analyzed centrally and managed on the basis of the Group’s planned net financial debt. A key factor in this management is the Group’s interest result over time and its sensitivity to interest rate changes. The Group aims for a balanced relationship between floating rates and long-term fixed interest rates depending on the absolute amount, forecast performance of the interest-bearing liability and interest level. This is implemented using underlying and derivative financial instruments for control.
Liquidity risks may arise through a lack of rollover financing (liquidity risk in a narrow sense), delayed receipt of payment and unforeseen expenditure (budgeting risk). Budgeting risk is determined by comparing deviations in actual spending with budget and reserve amounts. In a narrow sense, liquidity risk depends on the volume of debt due within a given period.
Liquidity risk is monitored on an ongoing basis with reference to the budget for current and future years. New and unplanned transactions (e.g., acquisitions) are continuously tracked. The maturity profile of financial assets and liabilities is also reconciled on a regular basis. Budget risks are managed through effective cash management and constant monitoring of projected versus actual cash flows. Debt maturities are also diversified to ensure that rising financing costs do not have a short-term impact. Credit facilities are also maintained for unplanned expenditures.
The Bertelsmann Group is exposed to default risks in the amount of the invested cash and cash equivalents and the positive fair value of the derivatives in its portfolio. Transactions involving money market securities and other financial instruments are exclusively conducted with a defined group of banks with a high credit rating (“core banks”). The credit ratings of core banks are constantly monitored and classified on the basis of quantitative and qualitative criteria (rating, CDS spreads, stock price, etc.). Counterparty limits determined on the basis of credit ratings refer to cash holdings and positive fair values; the use of limits is monitored regularly. Funds are invested in very short-term portfolios in some cases to preserve flexibility in the event of credit rating changes.
In addition, some tri-party transactions with banks have been concluded to reduce default risks. These tri-party transactions are collateralized investments, and the banks provide predefined securities as collateral. As in the previous year, at the end of the reporting period, no tri-party transactions were outstanding and no collateral had been provided. Processing these transactions and managing and valuing the collateral are performed by a clearing agent. Default risks arising from trade receivables are partially mitigated through credit insurance coverage. The Bertelsmann Group has obtained credit collateralization in the amount of €610 million for these receivables (previous year: €541 million).
The financing guidelines adopted by the Bertelsmann Group are designed to ensure a balance between financing security, return on equity and growth. The Group’s net indebtedness is based specifically on the requirements for a credit rating of “Baa1/BBB+.” Financial management at Bertelsmann is conducted using quantified financing objectives that are a central factor in ensuring the Group’s independence and capacity to act. These objectives, as elements of the planning process and regular monitoring, are broadly defined performance indicators. The key performance indicator for limiting economic debt within the Bertelsmann Group is a maximum leverage factor of 2.5. On December 31, 2016, the leverage factor was 2.5 (previous year: 2.4). In addition, the Coverage Ratio is to remain above 4. The coverage ratio amounted to 9.7 on December 31, 2016 (previous year: 10.1). The equity ratio is not to fall below 25 percent of total assets. Management of the equity ratio is based on the definition of equity in IFRS. Although minority interests in partnerships represent equity in financial terms, they are classified as debt for accounting purposes. In the financial year 2016, the equity ratio was 41.6 percent (previous year: 41.2 percent), meeting the internal financial target set by the Group.
For the analysis of interest rate risk, a distinction is made between cash flow and present value risks. Financial debt, cash and cash equivalents and interest rate swaps with variable interest terms are subject to a greater degree of cash flow risk, as changes in market interest rates impact the Group’s interest result almost immediately. In contrast, medium- and long-term interest rate agreements are subject to a greater degree of present value risk. The accounting treatment of present value risks depends on the respective financial instrument or a hedging relationship documented in conjunction with a derivative (micro-hedge).
Upon initial recognition, originated financial debt is measured at fair value less transaction costs. Subsequent measurement is based on amortized cost. Changes in fair value are limited to opportunity effects, as changes in interest rates have no effect on the balance sheet or the income statement. The recognition of originated financial debt at fair value is only permitted for transactions for which a micro-hedge is documented in accordance with IAS 39 in conjunction with the conclusion of an interest rate or exchange rate hedge transaction involving derivatives. In this case, changes in the fair value of the respective items are recognized in the income statement in order to substantially balance out the offsetting effects of the fair value measurement of the related derivatives.
For derivative financial instruments, the effects of changes in interest rates are recognized in the income statement. In the case of documented hedging relationships (cash flow hedges), however, these effects are taken directly to equity. The cash flow or present value risks existing at the end of the reporting periods are analyzed using a sensitivity calculation as an after-tax observation. A parallel shift in the interest rate curve of +/-1 percent is assumed for all major currencies. The analysis is performed on the basis of financial debt, cash and cash equivalents and derivatives at the end of the reporting period. The results are shown in the following table:
12/31/2016 | 12/31/2015 | |||
---|---|---|---|---|
in € millions | Shift +1% | Shift -1% | Shift +1% | Shift -1% |
Cash flow risks (income statement) | 8 | (8) | 5 | (5) |
Present value risks (income statement) | 4 | (4) | – | – |
Present value risks (equity) | – | – | – | – |
The analysis of exchange rate sensitivity includes the Group’s financial debt and operating transactions at the end of the reporting period and the hedging relationships entered into (forward agreements and options). The calculation is performed for the unsecured net exposure on the basis of an assumed 10 percent write-up of the euro versus all foreign currencies and is presented after tax. A uniform devaluation of foreign currencies would have resulted in a change in the carrying amount recognized in profit or loss of €-11 million (previous year: €-9 million). Thereof, €-6 million (previous year: €-3 million) relates to fluctuations in the US dollar exchange rate with a net exposure of US$95 million (previous year: US$53 million). Shareholders’ equity would have changed by €50 million (previous year: €43 million) as a result of fluctuations in the fair values of documented cash flow hedges. Thereof, €50 million (previous year: €43 million) relates to fluctuations in the US dollar exchange rate on the basis of a documented cash flow hedge volume of US$766 million (previous year: US$680 million). If there had been a uniform increase in the value of foreign currencies, this would have led to opposite changes in these amounts for the Bertelsmann Group.
In certain specific individual cases, Bertelsmann sells receivables to financial intermediaries. The receivables sold relate primarily to short-term external receivables that Arvato Financial Solutions acquires from third parties as part of its services in receivables management. This business can be changed at any time during the year. The receivables are resold to financial intermediaries on an ongoing basis. The volume of receivables sold amounted to €321 million as of the end of the reporting period (previous year: €331 million). As part of the contractual agreements on the sale of receivables, in the majority of cases neither all rewards nor all risks that are associated with the receivables were transferred or retained. In particular, parts of the default and late payment risks were retained by Bertelsmann, with the result that a receivable was accounted for in the amount of the continuing involvement of €45 million (previous year: €45 million). The carrying amount of the associated liability is €52 million (previous year: €54 million).