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 done in a centralized way via Bertelsmann SE & Co. KGaA, which provides the Group companies with liquidity and manages the issuance of guarantees and letters of comfort for Group companies. 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 12-month period 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, the economic debt May be modified for calculation purposes if necessary. As of June 30, 2014, the leverage factor was 2.4.
The net financial debt increased to €1,224 million compared to €681 million as of December 31, 2013. The increase is primarily attributable to dividend payments to shareholders and non-controlling interests, most of which were made during the first half of the year. The economic debt was €5,135 million as of June 30, 2014 (December 31, 2013: €4,216 million). The increase is essentially due to the increase in pension provisions as a result of a lower discount rate and the increase in net financial debt.
In the reporting period, the bond due in January 2014 and the promissory notes due in February and March 2014 were paid from existing liquidity when they became due. The Bertelsmann Group has a syndicated loan that runs until 2018. This forms the backbone of the strategic credit reserve, and 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, Bertelsmann prematurely renewed the syndicated loan until 2019.
Bertelsmann is rated by the rating agencies Moody’s and Standard & Poor’s (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
Total Group earnings before interest and taxes are the starting parameter for preparing the Bertelsmann cash flow statement. In the reporting period, Bertelsmann generated cash flow from operating activities of €405 million (H1 2013: €658 million). This development is attributable, among other things, to higher tax payments as a result of aperiodic effects and an increase in net working capital. The Group’s long-term operating free cash flow adjusted for non-recurring items was €463 million (H1 2013: €613 million). At €-359 million, cash flow from investing activities was significantly below the level for the first half of the previous year (H1 2013: €-904 million). The previous year’s high figure resulted from purchase price payments for the acquisitions made during the same period in the previous year. The cash flow from financing activities came to a much higher outflow of €-1,600 million (H1 2013: €-26 million). The increase is primarily attributable to the repayment of financial liabilities during the reporting period. The previous year’s figure included proceeds from the placement of RTL Group shares. In particular as a result of the repayment of due financial liabilities from existing liquidity, cash and cash equivalents as of June 30, 2014, fell to €1,171 million (December 31, 2013: €2,705 million).
Consolidated Cash Flow Statement (Summary)
|in € millions||H1 2014||H1 2013|
|Cash flow from operating activities||405||658|
|Cash flow from investing activities||(359)||(904)|
|Cash flow from financing activities||(1,600)||(26)|
|Change in cash and cash equivalents||(1,554)||(272)|
|Currency effects and other changes in cash and cash equivalents||10||(1)|
|Cash and cash equivalents as of 1/1||2,715||2,625|
|Cash and cash equivalents as of 6/30||1,171||2,352|
|Less cash and cash equivalents included within assets held for sale||—||(2)|
|Cash and cash equivalents as of 6/30 (according to the consolidated balance sheet)||1,171||2,350|
Investments, according to the cash flow statement for the first half of 2014, were €460 million (H1 2013: €928 million). As in the same period last year, the majority of the investments in property, plant and equipment, totaling €143 million (H1 2013: €133 million), stemmed from Arvato. Investments in intangible assets came to €142 million (H1 2013: €201 million) and were attributable primarily to RTL Group for investments in film rights and to BMG for the acquisition of music catalogs. The sum of €77 million was invested in financial assets (H1 2013: €54 million). Purchase price payments for consolidated investments (less acquired cash and cash equivalents) totaled €98 million in the reporting period (H1 2013: €540 million) and were attributable primarily to investments in the e-commerce service provider Netrada, the music publisher Talpa and the production company 495 Productions
Consolidated Balance Sheet
Total assets came to €19.9 billion as of June 30, 2014 (December 31, 2013: €21.4 billion). The decline is primarily attributable to the repayment of due financial liabilities from existing liquidity. Equity was €8.3 billion compared to €8.7 billion as of December 31, 2013. This resulted in a slightly higher equity ratio of 41.7 percent (December 31, 2013: 40.8 percent). Pension provisions increased to €2.3 billion as a result of a lower discount rate (December 31, 2013: €1.9 billion). Cash and cash equivalents were down to €1,171 million as of June 30, 2014, from €2,705 million as of December 31, 2013.
As of June 30, 2014, Bertelsmann had 111,761 employees worldwide (December 31, 2013: 111,099).