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 (video), 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 key 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, digital transformation, expanding growth platforms and expanding into growth regions.

Thanks to the diversification of its Group portfolio and the large share of digital businesses, Bertelsmann was able to partially offset the negative effects of the coronavirus pandemic in the first half of 2020. Further significant progress was also achieved in terms of the Group’s strategic priorities. Thanks to the comprehensive news reporting and entertainment offerings of the broadcasters and platforms, RTL Group garnered record-setting ratings and large audiences, and in some cases even added market share in recent months. Acquiring full ownership of Penguin Random House also marked a key milestone in strengthening the core businesses. The world’s largest trade book publisher is now a wholly owned group subsidiary of Bertelsmann. Numerous Gruner + Jahr brands launched new products and initiatives, including the “#stayathomeandcook” joint campaign by “Essen & Trinken” and “Chefkoch.” At the same time, Bertelsmann also further promoted the digital transformation. This is visible, among other things, in the rapidly growing number of paying subscribers for the TV Now and Videoland streaming services. A joint venture between RTL Group and Groupe M6 was established in France for building up and expanding a shared technology platform for streaming services. The Bertelsmann Content Alliance, already successfully launched in Germany, will be expanded to the United Kingdom through a joint podcast production company involving Fremantle, Penguin Random House, BMG and Dorling Kindersley. Many of Bertelsmann’s growth platforms recorded positive business performances and stronger demand for digital products and solutions. BMG entered into global record deals with international artists like Aloe Blacc and Jason Mraz and global publishing contracts with Erika Ender and Patricia Kelly. In addition, BMG artists and songwriters such as Lewis Capaldi and Tame Impala reported significant chartbusters. Arvato Financial Services reinforced its market position in the risk management business by entering into a joint venture with Experian and benefited from the continued growth of the purchase-onaccount solution for a major customer and the acquisition of the remaining shares in the purchase-on-account provider MF Group. The Bertelsmann Education Group reported stronger demand for online learning services at Relias and Udacity. In addition, Bertelsmann reinforced its presence in the growth regions through Bertelsmann Investments, which now holds some 240 investments in companies and funds, mainly through its four international funds. In February, Bertelsmann Brazil Investments benefited from a successful partial exit from an indirect investment in Brazilbased education provider Afya.

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. These are distinguished from performance indicators used in the broader sense. 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 2019 Combined Management Report.

Revenues as a growth indicator of the businesses decreased in the first half of 2020 by 8.9 percent to €7,848 million (H1 2019: €8,612 million). Organic revenue declined by 7.9 percent. Operating EBITDA is determined as earnings before interest, tax, depreciation, amortization, impairment losses and reversals of impairment losses, and is adjusted for special items. The adjustments for special items serve to determine a sustainable operating result that could be repeated under normal economic circumstances and is not affected by special factors or structural distortions. These special items primarily include impairment losses and reversals of impairment losses, fair value measurements, results from disposals of investments and/or restructuring expenses. This means that operating EBITDA is a meaningful performance indicator. During the reporting period, operating EBITDA decreased by 21.9 percent to €1,009 million (H1 2019: €1,292 million).

The 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 and portfolio planning and the management of 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 €451 million (H1 2019: €449 million), which were not included in special items. A flat tax rate of 30 percent (H1 2019: 33 percent) was assumed in order to calculate NOPAT of €391 million (H1 2019: €565 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 €16.4 billion as of June 30, 2020 (H1 2019: €16.2 billion). The uniform WACC after taxes is 8 percent, resulting in a cost of capital of €657 million (H1 2019: €646 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. In the first half of 2020, BVA amounted to €-222 million (H1 2019: €-46 million). BVA is determined without taking into account the Bertelsmann Investments division, since business performance is represented primarily on the basis of EBIT. Accordingly, the method does not include a NOPAT contribution from this division. To maintain consistency, the invested capital will be adjusted for the Bertelsmann Investments division; hence, capital costs will be neutralized.

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.