Fundamental Information about the Group

Corporate Profile

Bertelsmann operates in the core business fields of media, services and education in around 50 countries worldwide. The geographic core markets are Western Europe – in particular, Germany, France and the United Kingdom – and the United States. In addition, Bertelsmann is strengthening its involvement in growth markets such as Brazil, India and China. The Bertelsmann divisions are RTL Group (television), Penguin Random House (books), Gruner + Jahr (magazines), BMG (music), Arvato (services), Bertelsmann Printing Group (printing), Bertelsmann Education Group (education) and Bertelsmann Investments (funds).

Bertelsmann SE & Co. KGaA is a publicly traded but unlisted company limited by shares. As a Group holding company, it exercises central corporate functions. Internal corporate management and reporting follow the Group’s organizational structure, which consists of the operating divisions and Corporate.

Three foundations (Bertelsmann Stiftung, Reinhard Mohn Stiftung and BVG-Stiftung) indirectly hold 80.9 percent of Bertelsmann SE & Co. KGaA shares, with the remaining 19.1 percent held indirectly by the Mohn family. Bertelsmann Verwaltungsgesellschaft (BVG) controls all voting rights at the General Meeting of Bertelsmann SE & Co. KGaA and Bertelsmann Management SE (general partner).

Strategy

Bertelsmann aims to achieve a fast-growing, digital, international and diversified Group portfolio. The Group strategy comprises four strategic priorities: strengthening the core businesses, driving the digital transformation forward, developing growth platforms and expanding into growth regions.

In the first half of 2019, Bertelsmann once again made considerable progress in implementing its strategy. The core businesses were further strengthened, for instance, by new original productions at RTL Group and the upcoming addition of the children’s television channel Gulli to the family of channels in France. Penguin Random House continued to expand the book publishing business through organic growth and acquisitions, including the acquisition of the British children’s book publishing company Little Tiger Group and creative successes such as Michelle Obama’s memoir “Becoming.” At the beginning of the year, Bertelsmann and the Saham Group completed the merger of their global CRM businesses under a newly formed company, Majorel. The global print businesses of Bertelsmann Printing Group were restructured both organizationally and in terms of staffing to further reinforce collaboration among the individual printing companies and to achieve gains in both efficiency and effectiveness. As yet another strategic focus, there were efforts to establish collaborations in the Bertelsmann Group, particularly by founding Bertelsmann Content Alliance in Germany. The continued digital transformation was furthered through the continual expansion of the digital businesses. RTL Group increased the number of users of its video-ondemand platforms in Germany and the Netherlands by 46.2 percent to 1.2 million paying subscribers within the year. The digital business of Gruner + Jahr performed well overall, particularly the app discovery platform AppLike. The growth platforms were expanded further and recorded strong organic growth, particularly Fremantle. BMG expanded its presence in Asia by opening a branch in Hong Kong. In April, contracts were signed with Richard Marx and the Berlin-based band Seeed, among others. In the online education segment, Relias continued to expand its customer base and integrated the healthcare division of OnCourse Learning, a company acquired last year. The online learning platform Udacity also initiated new Nanodegree programs in the field of data engineering. The company’s presence in the growth regions was also expanded. Of the investments held by Bertelsmann Investments, more than 110 are active in China, while the remainder of the focus is on the strategic growth regions of India and Brazil. In July 2019, Brazil-based Afya Education, a medical education and training provider, made its debut on the Nasdaq Stock Market, a stock exchange based in New York. Bertelsmann holds an indirect interest in Afya through its investment fund Bertelsmann Brazil Investments (BBI).

Value-Oriented Management System

Bertelsmann’s primary objective is continuous growth of the company’s value through a sustained increase in profitability with efficient capital investment at the same time. Strictly defined operational performance indicators, including revenues, operating EBITDA and Bertelsmann Value Added (BVA), are used to directly assess current business performance and are correspondingly used in the outlook. Broadly defined performance indicators are applied separately. These include the EBITDA margin and the cash conversion rate. Some of the key performance indicators are determined on the basis of so-called Alternative Performance Measures, which are not defined under International Financial Reporting Standards (IFRS). These should not be considered in isolation but as complementary information for evaluating Bertelsmann’s business performance. For detailed information on this, please refer to the “Alternative Performance Measures” section in the 2018 Combined Management Report.

Revenues as a growth indicator of the businesses increased in the first half of 2019 by 4.6 percent to €8,612 million (H1 2018: €8,237 million). Organic growth improved to 3.2 percent. Operating EBITDA is determined as earnings before interest, tax, depreciation, amortization and impairment losses, and is adjusted for special items. The adjustment for special items serves to determine a sustainable operating result that could be repeated under normal economic circumstances, which is not affected by special factors or structural distortions. These special items primarily include impairment losses and reversals of impairment losses, fair value measurement of investments, restructuring expenses and/or results from disposals of investments. This means that operating EBITDA is a meaningful performance indicator. During the reporting period, operating EBITDA increased by 20.6 percent to €1,292 million (H1 2018: €1,071 million).

The central performance indicator for assessing the profitability from operations and return on invested capital is BVA. BVA measures the profit realized above and beyond the appropriate return on invested capital. This form of value orientation is reflected in strategic investment, portfolio planning and the management of Group operations and, together with qualitative criteria, provides the basis for measuring the variable portion of management remuneration. BVA is calculated as the difference between net operating profit after tax (NOPAT) and the cost of capital. NOPAT is calculated on the basis of operating EBITDA. Operating EBIT is the result of deducting amortization, depreciation, impairment losses and reversals of impairment losses on intangible assets, property, plant and equipment, and right-of-use assets totaling €449 million (H1 2018: €310 million), which were not included in special items. A flat tax rate of 33 percent was assumed in order to calculate NOPAT of €565 million (H1 2018: €510 million), which is used to calculate BVA. Cost of capital is the product of the average level of capital invested on a pro rata basis and the weighted average cost of capital (WACC). The average level of capital invested on a pro rata basis totaled €16.2 billion as of June 30, 2019 (H1 2018: €15.0 billion). The uniform WACC after taxes is 8 percent, resulting in cost of capital of €646 million (H1 2018: €600 million) in the half-year reporting period. The average invested capital is calculated quarterly on the basis of the Group’s operating assets less non-interest-bearing operating liabilities. Upon the adoption of the new financial reporting standard IFRS 16, the right-of-use assets from leases, which had previously been recorded as the present value of the operating lease, have been included on the balance sheet since the financial year 2019 and are thus considered part of invested capital. The Bertelsmann Investments division is not taken into account when determining BVA. In the first half of 2019, BVA amounted to €-46 million (H1 2018: €-63 million).

Bertelsmann’s financial management and controlling system is defined by the internal financial targets outlined in the “Net Assets and Financial Position” section. These financing principles are pursued in the management of the Group and are included in the broadly defined value-oriented management system. The key financing and leverage ratios are also included in the Alternative Performance Measures.