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Financing Guidelines

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 Group’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 calculated as the ratio of economic debt to Operating EBITDA and limited to the defined maximum of 2.5. Economic debt is defined as net financial debt 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 December 31, 2014, the Group had a leverage factor of 2.7, above its self-imposed maximum value of 2.5 (December 31, 2013: 2.0). A further reduction of the discount rate led to a significant increase in pension provisions and similar obligations to €2,698 million as of December 31, 2014 (December 31, 2013: €1,941 million). As of December 31, 2014, economic debt increased to €6,039 million from €4,216 million in the previous year. The increase is attributable not only to increased pension provisions and similar obligations but also to a continued high level of investment activity in the reporting period. Consequently, the net financial debt increased to €1,689 million by the end of the year (previous year: €681 million). The previous year’s figure also includes proceeds from the placement of RTL Group shares.

Financial Targets  

Target20142013
Leverage factor: Economic debt/Operating EBITDA1)< 2.52.72.0
Coverage ratio: Operating EBITDA/Financial result1)> 4.07.55.9
Equity ratio: Equity as a ratio to total assets (in percent)> 25.038.940.9

Another financial target is the coverage ratio. This is calculated as the ratio of operating EBITDA (after modifications) to financial result and is supposed to be above 4. In the reporting period the coverage ratio was 7.5 (previous year: 5.9). The Group’s equity ratio was 38.9 percent (December 31, 2013: 40.9 percent), which remains significantly above the self-imposed minimum of 25 percent.

Financing Activities

Bonds and Promissory Notes of Bertelsmann SE & Co. KGaA  

Issue volume
in € millions
Carrying amount
12/31/2014
in € millions
MaturityTypeNominal interest in percent
500430October 6, 2015Bond3.625
1,000785September 26, 2016Bond4.750
6060May 4, 2019Promissory note4.207
100100November 18, 2019Floating-rate note3-mon.-EURIBOR + 40 Bp.
750741August 2, 2022Bond2.625
500496October 14, 2024Bond1.750
10098June 29, 2032Bond3.700

In the reporting period, a bond due in January 2014 and promissory notes due in February and March 2014 were paid from existing liquidity when they became due. In addition, Bertelsmann took advantage of the low interest level in financial year 2014 to raise some long-term capital. In October 2014, a benchmark bond with a ten-year term and an issue volume of €500 million was successfully placed. The bond was listed in Luxembourg and has a fixed coupon of 1.75 percent. In November 2014, another bond for €100 million with a variable interest rate and a five-year term was issued by means of a private placement.

Maturity Structure of Financial Debt in € millions

Maturity Structure of Financial Debt in € millions

Rating

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.

Credit Facilities

As well as its existing liquidity, the Bertelsmann Group has access to liquidity via a syndicated loan. This forms the backbone of the strategic credit reserve; Bertelsmann can utilize this to draw down up to €1.2 billion of revolving funds in euros, US dollars and pounds sterling. In July 2014, the syndicated loan previously with a term through to 2018 was renewed early for a further year, namely until 2019.

Cash Flow Statement

The total earnings before interest and taxes is the starting parameter for preparing the Bertelsmann cash flow statement. In the reporting period, Bertelsmann generated net cash from operating activities of €1,523 million (previous year: €1,779 million). The Group’s long-term operating free cash flow adjusted for non-recurring items was €1,711 million (previous year: €1,826 million). The deviation compared to the previous year’s figure is attributable, among other things, to a higher overall level of funds tied up within net current assets. The cash conversion rate was 97 percent (previous year: 104 percent), within the target corridor (cf. “Value-Oriented Management System” section). The cash flow from investing activities was €-1,523 million (previous year: €-1,004 million). This included investments in intangible assets and fixed and financial assets of €-758 million (previous year: €-811 million). The purchase prices for consolidated investments (net of acquired cash and cash equivalents) were €-820 million (previous year: €-501 million). Proceeds from the sale of subsidiaries and other business units and disposal of other fixed assets were €90 million (previous year: €379 million). Cash flow from financing activities was €-1,434 million (previous year: €-663 million). The outflow of €-1,048 million was attributable to the repayment of financial debt. This was offset by inflows from the issuance of bonds. Dividends paid to the shareholders of Bertelsmann SE & Co. KGaA came to €-180 million (previous year: €-180 million). Dividends to non-controlling interests and payments to partners in partnerships came to €-585 million (previous year: €-445 million). This includes the purchase price for the acquisition of the 25.1 percent share in Gruner + Jahr ranged in the low triple-digit millions. As of December 31, 2014, Bertelsmann had cash and cash equivalents of €1.3 billion (previous year: €2.7 billion).

Group Cash Flow Statement (Summary)  

in € millions20142013
Cash flow from operating activities1,5231,779
Cash flow from investing activities(1,523)(1,004)
Cash flow from financing activities(1,434)(663)
Change in cash and cash equivalents(1,434)112
Currency effects and other changes in cash and cash equivalents50(22)
Cash and cash equivalents at 1/12,7152,625
Cash and cash equivalents at 12/311,3312,715
Less cash and cash equivalents included with assets held for sale(2)(10)
Cash and cash equivalents at 12/31 (according to the Group balance sheet)1,3292,705

Off-Balance-Sheet Liabilities

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-balance-sheet liabilities decreased year on year. The off-balance-sheet liabilities in place as of December 31, 2014, 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.

Investments

Total investments including financial debt acquired of €23 million (previous year: €676 million) amounted to €1,601 million in financial year 2014 (previous year: €1,988 million). Investments according to the cash flow statement amounted to €1,578 million (previous year: €1,312 million). As in previous years, the majority of the €334 million investment in property, plant and equipment (previous year: €289 million) stemmed from Arvato. Investments in intangible assets came to €248 million (previous year: €404 million) and were primarily attributable to RTL Group for investments in film rights and to BMG for the acquisition of music catalogs. The sum of €176 million was invested in financial assets (previous year: €118 million). Purchase prices for consolidated investments (less acquired cash and cash equivalents) totaled €820 million in the reporting period (previous year: €501 million) and were primarily attributable to the acquisitions of Relias and Santillana and to the majority shareholdings in SpotXchange and StyleHaul.

Investments by Division  

in € millions20142013
RTL Group468262
Penguin Random House121(36)
Gruner + Jahr6246
Arvato246298
Be Printers2925
Corporate Investments656679
Total investments by division1,5821,274
Corporate Center/Consolidation(4)38
Total investments1,5781,312

Balance Sheet

Total assets increased to €21.5 billion as of December 31, 2014 (previous year: €21.4 billion). The increase is primarily attributable to acquisitions which led to an increase in intangible assets. Cash and cash equivalents decreased to €1.3 billion (previous year: €2.7 billion). The decline is mainly attributable to the repayment of financial debt in financial year 2014. Equity declined to €8.4 billion (previous year: €8.8 billion), which is primarily attributable to a remeasurement of provisions for defined pension plans. As a result of the decline, the equity ratio decreased from 40.9 percent in the previous year to 38.9 percent. Equity attributable to Bertelsmann SE & Co. KGaA shareholders fell to €6.5 billion (previous year: €6.9 billion). Provisions for pensions and similar obligations increased significantly to €2,698 million (previous year: €1,941 million) due to a further reduction of the discount rate. Gross financial debt decreased from €3,386 million to €3,018 million as of December 31, 2014, due to the repayments of long-term debt reported in the section “Financing Activities”. Apart from that, the balance sheet structure remained largely unchanged from the previous year.

Balance Sheet

Balance Sheet

Profit Participation Capital

Profit participation capital had a par value of €301 million as of December 31, 2014, 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, 2014 (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 financial year 2014 was 277.30 percent in January; their highest was 313.40 percent in July.

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 as well as 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 financial year 2014.

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 financial year 2014 was 4.93 percent (previous year: 6.49 percent), the payout on the 1992 profit participation certificates for financial year 2014 will be 5.93 percent of their notional value (previous year: 7.49 percent).

The payout distribution date for both profit participation certificates is expected to be May 6, 2015. 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.