Condensed Interim Consolidated
Financial Statements

Consolidated Income Statement

in € millionsH1 2020H1 2019
Revenues7,8488,612
Other operating income179194
Cost of materials(2,357)(2,761)
Royalty and license fees(754)(715)
Personnel costs(2,660)(2,818)
Amortization/depreciation, impairment and reversals on intangible assets, property, plant and
equipment and right-of-use assets
(453)(461)
Other operating expenses(1,300)(1,365)
Results from investments accounted for using the equity method2662
Impairment and reversals on investments accounted for using the equity method(65)
Results from disposals of investments34176
EBIT (earnings before interest and taxes)805824
 
Interest income67
Interest expenses(73)(56)
Other financial income53
Other financial expenses(122)(122)
Financial result(184)(168)
 
Earnings before taxes621656
Income tax expense(133)(154)
 
Group profit or loss488502
 
attributable to:
Bertelsmann shareholders386325
Non-controlling interests102177

Consolidated Statement of Comprehensive Income

in € millionsH1 2020H1 2019
Group profit or loss488502
 
Items that will not be reclassified subsequently to profit or loss
Remeasurement component of defined benefit plans20(231)
Changes in fair value of equity instruments(1)
Share of other comprehensive income of investments accounted for using the equity method
 
Items that will be reclassified subsequently to profit or loss when specific conditions are met
Exchange differences
– changes recognized in other comprehensive income(100)27
– reclassification adjustments to profit or loss(9)7
Cash flow hedges
– changes in fair value recognized in other comprehensive income43
– reclassification adjustments to profit or loss(3)(1)
Share of other comprehensive income of investments accounted for using the equity method1(2)
 
Other comprehensive income net of tax(88)(197)
 
Group total comprehensive income400305
 
attributable to:
Bertelsmann shareholders306136
Non-controlling interests94169

Consolidated Balance Sheet

in € millions6/30/202012/31/2019
Assets
Non-current assets
Goodwill8,4698,537
Other intangible assets2,4122,436
Property, plant and equipment and right-of-use assets2,8562,935
Investments accounted for using the equity method782652
Minority stakes and other financial assets1,1521,320
Trade and other receivables7289
Other non-financial assets880922
Deferred tax assets1,0041,087
17,62717,978
Current assets
Inventories1,7221,745
Trade and other receivables3,9814,523
Other financial assets40863
Other non-financial assets1,1371,092
Current income tax receivables70178
Cash and cash equivalents4,7731,636
12,0919,237
Assets held for sale15102
29,73327,317
 
Equity and liabilities
Equity
Subscribed capital1,0001,000
Capital reserve2,3452,345
Retained earnings5,3785,509
Bertelsmann shareholders’ equity8,7238,854
Non-controlling interests1,4471,591
10,17010,445
Non-current liabilities
Provisions for pensions and similar obligations1,9491,967
Other provisions157178
Deferred tax liabilities8695
Profit participation capital413413
Financial debt5,9874,612
Lease liabilities1,0621,116
Trade and other payables356363
Other non-financial liabilities378379
10,3889,123
Current liabilities
Other provisions247214
Financial debt2,178388
Lease liabilities273276
Trade and other payables4,6224,840
Other non-financial liabilities1,7711,908
Current income tax payables7678
9,1677,704
Liabilities related to assets held for sale845
29,73327,317

Consolidated Cash Flow Statement

in € millionsH1 2020H1 2019
Group earnings before interest and taxes805824
Taxes received/paid35(230)
Depreciation and write-ups of non-current assets519460
Results from disposals of investments(341)(76)
Gains/losses from disposals of non-current assets(1)(7)
Change in provisions for pensions and similar obligations48(44)
Change in other provisions3(17)
Change in net working capital124(296)
Fair value measurement of investments(60)(9)
Other effects6(37)
Cash flow from operating activities1,138568
Investments in:
– intangible assets(174)(141)
– property, plant and equipment(139)(155)
– financial assets(79)(189)
– purchase prices for consolidated investments (net of acquired cash)(10)(93)
Disposals of subsidiaries and other business units27217
Disposals of other fixed assets146254
Cash flow from investing activities(229)(107)
Issues of bonds and promissory notes1,834
Redemption of bonds and promissory notes(210)
Proceeds from/redemption of other financial debt1,279133
Redemption of lease liabilities(124)(120)
Interest paid(111)(159)
Interest received1616
Dividends to Bertelsmann shareholders(180)
Dividends to non-controlling interests and payments to partners in partnerships (IAS 32.18(b))(7)(202)
Change in equity(677)117
Other effects94
Cash flow from financing activities2,219(601)
Change in cash and cash equivalents3,128(140)
Exchange rate effects and other changes in cash and cash equivalents2(5)
Cash and cash equivalents 1/11,6431,405
Cash and cash equivalents 6/304,7731,260
Less cash and cash equivalents included within assets held for sale(29)
Cash and cash equivalents 6/30 (according to the consolidated balance sheet)4,7731,231

Changes in Net Liabilities Arising from Financing Activities

in € millionsH1 2020H1 2019
Net liabilities arising from financing activities at 1/1(4,756)(5,262)
Cash flow from operating activities1,138568
Cash flow from investing activities(229)(107)
Interest, dividends and changes in equity, additional payments (IAS 32.18(b))(779)(408)
Exchange rate effects and other changes in net liabilities arising from financing activities(101)(73)
Net liabilities arising from financing activities at 6/30(4,727)(5,282)

Consolidated Statement of Changes in Equity

in € millions Sub-
scribed
capital
Capital
reserve1)
Retained earnings Bertels-
mann
share-
holders’
equity
Non-
con-
trolling interests
Total
Other
retained
earnings
Accumulated other comprehensive income2)
Exchange
differ-
ences
Fair value
reserve
Cash flow
hedges
Share of
other com-
prehensive
income of
investments
accounted
for using
the equity
method
Balance as of 1/1/2019 1,000 2,345 5,200 (85) 12 (3) 5 8,474 1,364 9,838
Adjustment (38) (38) (12) (50)
Balance as of 1/1/20193) 1,000 2,345 5,162 (85) 12 (3) 5 8,436 1,352 9,788
Group profit or loss 325 325 177 502
Other comprehensive income (219) 31 1 (2) (189) (8) (197)
Group total comprehensive
income
106 31 1 (2) 136 169 305
Dividend distributions (180) (180) (198) (378)
Changes in ownership
interests in subsidiaries
that do not result in a loss
of control
(2) 8 6 94 100
Equity transactions with
shareholders
(182) 8 (174) (104) (278)
Other changes (4) (2) (6) 62 56
Balance as of 6/30/2019 1,000 2,345 5,082 (46) 10 (2) 3 8,392 1,479 9,871
 
Balance as of 1/1/2020 1,000 2,345 5,496 3 8 1 1 8,854 1,591 10,445
Group profit or loss 386 386 102 488
Other comprehensive
income
20 (101) (1) 1 1 (80) (8) (88)
Group total comprehensive income 406 (101) (1) 1 1 306 94 400
Dividend distributions (2) (2)
Changes in ownership
interests in subsidiaries
that do not result in a loss
of control4)
(429) (8) (437) (235) (672)
Equity transactions with
shareholders
(429) (8) (437) (237) (674)
Other changes (1) (1)
Balance as of 6/30/2020 1,000 2,345 5,473 (106) 7 2 2 8,723 1,447 10,170

Segment Information

RTL GroupPenguin
Random House
Gruner + JahrBMGArvatoBertelsmann
Printing Group
Bertelsmann
Education Group
Bertelsmann
Investments2)
Total
divisions
CorporateConsolidationGroup total
in € millionsH1 2020H1 2019H1 2020H1 2019H1 2020H1 2019H1 2020H1 2019H1 2020H1 2019H1 2020H1 2019H1 2020H1 2019H1 2020H1 2019H1 2020H1 2019H1 2020H1 2019H1 2020H1 2019H1 2020H1 2019
Revenues from external customers2,6173,1401,6271,6505086692802682,0642,019584682158168467,8428,6026107,8488,612
Intersegment revenues3533168213130668411511561617(167)(173)
Divisional revenues2,6523,1731,6271,6505246772822692,0952,049650766158168567,9938,7582227(167)(173)7,8488,612
 
Operating EBITDA3826652092272862494930526319304041(3)(1)1,0291,336(16)(44)(4)1,0091,292
 
EBITDA margin1)14.4 %20.9 %12.8 %13.8 %5.4 %9.1 %17.3 %18.1 %14.6 %12.8 %2.9 %3.9 %24.9 %24.2 %-71.0 %-13.4 %12.9 %15.3 %n/an/an/an/a12.9 %15.0 %
 
Impairment (-)/reversals (+) on intangible
assets, property, plant and equipment
and right-of-use assets
2(5)(1)(2)(3)(4)(13)(1)(14)
 
Results from investments accounted for
using the equity method
1328(1)45410252761(1)12662


Reconciliation to Operating EBITDA

in € millionsH1 2020H1 2019
EBIT805824
Special items
– adjustment to carrying amounts on assets held for sale7
– Impairment (+)/reversals (-) on other financial assets at amortized cost1(8)
– Impairment (+)/reversals (-) on investments accounted for using the equity method65
– results from disposals of investments(341)(76)
– fair value measurement of investments(60)(9)
– restructuring and other special items88105
Amortization/depreciation, impairment and reversals on intangible assets, property, plant and
equipment and right-of-use assets
453461
Adjustments on amortization/depreciation, impairment and reversals on intangible assets, property,
plant and equipment and right-of-use assets included in special items
(2)(12)
Operating EBITDA1,0091,292

Selected Explanatory Notes

Accounting Principles

The Bertelsmann SE & Co. KGaA Interim Financial Report complies with International Financial Reporting Standards (IFRS) and the related interpretations (IFRIC) of the IFRS Interpretations Committee (IFRS IC) applicable in the European Union (EU-IFRS) and contains Condensed Interim Consolidated Financial Statements prepared in accordance with IAS 34 Interim Financial Reporting, including selected explanatory notes. This report was prepared – with the exception of the financial reporting standards and interpretations applied for the first time in the current financial year – using fundamentally the same accounting and measurement policies as in the Consolidated Financial Statements of December 31, 2019. A detailed description of these policies is presented in the notes to the Consolidated Financial Statements in the 2019 Annual Report. The first-time application of the new financial reporting standards had no material impact on the Bertelsmann Group. The Bertelsmann Group has not opted for early adoption of any standards, interpretations or amendments that have been issued but are not yet effective. The Condensed Interim Consolidated Financial Statements and the Group Interim Management Report were neither audited in accordance with section 317 of the German Commercial Code (Handelsgesetzbuch, HGB) nor reviewed in accordance with section 115 para. 5 of the German Securities Trading Act (Wertpapierhandelsgesetz, WpHG) by an auditor.

Effects of Coronavirus Pandemic on the Condensed Interim Consolidated Financial Statements

The effects of the coronavirus pandemic on the Condensed Interim Consolidated Financial Statements of Bertelsmann SE & Co. KGaA, both in terms of operations and balance sheet, vary in media, services, education and investment. While revenues from advertising declined significantly, the less affected music, services and education areas partially compensated these effects. In addition to the Group-wide implementation of extended procedures to monitor cash and receivables, financing measures were taken at early stage at the beginning of the looming coronavirus pandemic and its macroeconomic consequences. Furthermore, balance sheet effects were determined and evaluated for the particularly relevant issues. These issues were the impairment of goodwill and individual assets, leasing, royalties, program rights, inventories, trade receivables, government grants, deferred tax assets, losses from onerous contracts and revenues. No significant issues were noted except for the impairment of the investment in Atresmedia (further explanations are presented in the section “Other Information”).

Economic uncertainties arising from the coronavirus pandemic require extended discretionary decisions, estimates and assumptions. The assessment of the extent to which current and future customers will continue to be able to fulfill their payment obligations resulting from customer contracts is subject to uncertainties in the current macroeconomic situation, so Bertelsmann focuses on examining this criterion before and at the time of satisfying performance obligations as part of revenue recognition. In addition, the estimation of the variable consideration based on capacity utilization and the determination of transaction prices are subject to uncertainty.

The coronavirus pandemic was considered a triggering event for the impairment test of goodwill allocated to the cash-generating units (CGUs). Initially, the headroom for the CGUs, last calculated as of December 31, 2019, as the difference between the recoverable amount and the carrying amount, the current estimate of the effects of the coronavirus pandemic for the entire financial year 2020, and the variance between planned and actual figures in the first months of the financial year are analyzed and the type and scope of further necessary analyses are determined on this basis. Since the performance of necessary impairment tests is currently subject to increased uncertainty and extended discretionary decisions in the context of cash flow forecasts, various scenarios are considered and weighted with regard to future developments when determining the recoverable amounts. Depending on the CGU, a distinction is made between so-called V, U and L scenarios, each with different points in time and, if necessary, according to the respective degree of expected economic recovery. To determine the recoverable amount, the cash flows determined are discounted using the cost of capital rate applicable on the reporting date. Where Group companies have applied for and received grants to fight the coronavirus pandemic in various forms, income grants are generally deferred and recognized as income over the term of the grant. By contrast, investment grants reduce the cost of the acquired asset. Due to the fact that newly created conditions are subject to interpretation ex post, the risk that the conditions for a granted subsidy may not be fulfilled despite intensive checks in advance cannot be completely ruled out. In light of the coronavirus pandemic, the use of government tax incentive programs is also being considered. A potential loss carryback to previous years within the US tax group under the CARES Act is worth mentioning in this context.

Overall, apart from the operational effects on revenues resulting from the coronavirus pandemic, no further significant effects on the Bertelsmann Group’s financial position, performance and cash flows are currently expected except for the impairment of the investment in Atresmedia. Furthermore, the information on significant discretionary decisions, estimates and assumptions in the notes to the 2019 Annual Report still applies. Management is of the opinion that the additional estimates and discretionary decisions required by the coronavirus pandemic take appropriate account of the currently foreseeable microeconomic and macroeconomic situation.

Scope of Consolidation

The Condensed Interim Consolidated Financial Statements as of June 30, 2020, include Bertelsmann SE & Co. KGaA and all material subsidiaries over which Bertelsmann SE & Co. KGaA is able to exercise control in accordance with IFRS 10. Joint ventures and associates are accounted for using the equity method in accordance with IAS 28. As of June 30, 2020, the scope of consolidation including Bertelsmann SE & Co. KGaA consists of 916 (December 31, 2019: 933) companies with 14 additions and 31 disposals in the first half of 2020. This includes 843 (December 31, 2019: 861) consolidated companies. In addition, investments in 20 (December 31, 2019: 22) joint ventures and 53 (December 31, 2019: 50) associates are accounted for using the equity method in the Consolidated Financial Statements. A total of 188 (December 31, 2019: 191) companies were excluded from the scope of consolidation. These consist of the associates in the portfolio of the Bertelsmann Investments division and entities without significant business operations and of negligible importance for the financial position and financial performance of the Bertelsmann Group.

Acquisitions and Disposals

The Bertelsmann Group made several acquisitions in the first half of 2020, none of which was material on a standalone basis. In total, the impact of these acquisitions on the Group’s financial position and financial performance was also minor. The cash flow from acquisition activities totaled €-10 million, of which €-8 million related to new acquisitions during the first half of the year less cash and cash equivalents acquired. The consideration transferred in accordance with IFRS 3 amounted to €41 million, taking into account contingent consideration of €2 million. In addition, put options in the amount of €9 million were accounted for in relation to the acquisitions. The other acquisitions resulted in goodwill totaling €58 million, which reflects synergy potential and is not tax deductible. Transaction-related costs amounted to less than €1 million in the first half of 2020 and have been recognized in profit or loss.

The purchase price allocations consider all the facts and circumstances prevailing as of the respective dates of acquisition that were known prior to preparation of the Consolidated Financial Statements. In accordance with IFRS 3, should further facts and circumstances become known within the 12-month measurement period, the purchase price allocation will be adjusted accordingly.

The following table shows the fair values of the assets and liabilities of the acquisitions on their dates of initial consolidation based on the currently still preliminary purchase price allocations:

Effects of Acquisitions

in € millionsTotal
Non-current assets
Goodwill58
Other intangible assets18
Property, plant and equipment and right-of-use assets1
Other non-current assets2
Current assets
Inventories1
Trade and other receivables60
Other current assets5
Cash and cash equivalents24
 
Liabilities
Provisions for pensions and similar obligations(2)
Financial debt(54)
Lease liabilities(1)
Other financial and non-financial liabilities(42)
 
Fair value of pre-existing interests29

Since initial consolidation, all new acquisitions in accordance with IFRS 3 in the first half of 2020 have contributed €10 million to revenue and an immaterial amount to Group profit or loss. If consolidated as of January 1, 2020, these would have contributed €22 million to revenue and €1 million to Group profit or loss.

In March 2020, Groupe M6, which belongs to RTL Group, sold its interests held in its subsidiary iGraal, the French leader in cash back, to German Global Savings Group (GSG), a major global player in digital marketing. The deal, which takes the form of a partial cash sale for €35 million and a share swap, valued iGraal at €126 million. As a result, Groupe M6 becomes the leading shareholder in GSG, with 42.72 percent of the capital, and consolidates its results via the equity method (initial recognition of the investment in GSG at €91 million). Net of transaction-related costs, the transaction resulted in an overall gain of €78 million recognized in the item “Results from disposals of investments.” As of December 31, 2019, the iGraal disposal group was presented as an asset classified as held for sale.

The Arvato division sold 60 percent of its interest in informa Solutions GmbH to GUS Treasury Services B.V. in June 2020 for €231 million. The purchase price was settled by the transfer of 7.2 million ordinary shares of Experian plc, the parent company of GUS Treasury Services B.V., for a total of €223 million and a cash payment of €8 million. The ordinary shares are presented under other current financial assets and are based on level 1 of the fair value hierarchy. Net of transaction-related costs, the transaction resulted in an overall gain of €253 million recognized in the item “Results from disposals of investments.” This gain includes €86 million from the fair value measurement of the Bertelsmann Group’s remaining 40 percent interest in informa Solutions GmbH. In the Bertelsmann Consolidated Financial Statements, this remaining 40 percent interest in informa Solutions GmbH is presented as an associate in the item “Investments accounted for using the equity method.” The fair value of these shares determined at the time of disposal is €123 million.

After considering the cash and cash equivalents disposed of, the Bertelsmann Group recorded cash flows in the amount of €27 million from all disposals in the first half of 2020. The disposals led to a gain from deconsolidation of €328 million, which is recognized in the item “Results from disposals of investments.” The following table shows their impact on the Bertelsmann Group’s assets and liabilities at the time of deconsolidation:

Effects of Disposals

in € millionsiGraalinforma SolutionsOtherTotal
Non-current assets
Goodwill41794124
Other intangible assets210214
Property, plant and equipment and right-of-use assets33
Other non-current assets33
Current assets
Inventories77
Other current assets2013336
Cash and cash equivalents99624
 
Liabilities
Provisions for pensions and similar obligations22
Lease liabilities22
Other financial and non-financial liabilities27191359

Change in Bertelsmann Shareholders’ Equity

On April 1, 2020, Bertelsmann increased its investment in the trade book publisher Penguin Random House to 100 percent. In this regard, Bertelsmann acquired the remaining 25 percent interest from its former British co-shareholder Pearson. German Verlagsgruppe Random House, which was already wholly owned by Bertelsmann, has been merged with the international publishing group and now operates as Penguin Random House Verlagsgruppe. The purchase price payment for the 25 percent interest amounted to €619 million. In addition, transaction-related costs amounted to €1 million, which was recognized directly in equity. The transaction was accounted for as an equity transaction in accordance with IFRS 10. The difference between the purchase price including transaction-related costs in the amount of €620 million and the carrying amount of the acquired non-controlling interest was recognized in Bertelsmann shareholders’ equity. The transaction resulted in a reduction of the equity attributable to the Bertelsmann shareholders in the amount of €403 million and the equity attributable to the non-controlling interests in the amount of €217 million.

in € millionsChange in Bertelsmann
shareholders’ equity
Carrying amount of interests acquired217
Purchase price for non-controlling interests(619)
Transaction-related costs(1)
Decrease in Bertelsmann shareholders’ equity(403)
– thereof decrease in retained earnings(396)
– thereof decrease in the currency translation reserve(7)

Currency Translation

The following euro exchange rates were used for currency translation purposes for the most significant foreign currencies for the Bertelsmann Group.

  Average ratesClosing rates
Foreign currency unit per €1 H1 2020H1 20196/30/202012/31/20196/30/2019
Australian dollarAUD1.67461.60021.63441.59951.6244
Canadian dollarCAD1.50361.50701.53241.45981.4893
Chinese renminbiCNY7.75007.66537.92197.82057.8185
British poundGBP0.87400.87370.91240.85080.8966
US dollarUSD1.10201.12971.11981.12341.1380

Additional Disclosures on Revenues

In the first half of 2020, Group revenues of €7,713 million were generated from contracts with customers in accordance with IFRS 15 (H1 2019: €8,500 million). The other revenues amounting to €135 million (H1 2019: €112 million) not in the scope of IFRS 15 resulted almost entirely from financial services in the Arvato division. The following table shows the revenues from contracts with customers in accordance with IFRS 15 by division and broken down by revenue source, geographical area and timing of revenue recognition. The categorization of revenue sources and geographical areas shown corresponds to that used in segment reporting. By contrast, the revenues reported reflect exclusively the revenues in accordance with IFRS 15 and consequently differ in amount from the breakdown of revenues in segment reporting.

Revenue from Contracts with Customers

H1 2020

in € millionsRTL GroupPenguin
Random
House
Gruner +
Jahr
BMGArvatoBertels-
mann
Printing
Group
Bertels-
mann
Education
Group
Total
divisions1)
Revenue Sources
Own products and merchandise521,561243153791,917
Services164441171,8925651582,940
Advertising1,343141101,494
Rights and licenses1,0582272651,352
2,6171,6275082801,9295841587,703
 
Geographical Areas
Germany7911143473975637912,427
France54121031719922884
United Kingdom103182133397571486
Other European countries6081272929555721,420
United States5199907139143491532,000
Other countries5521292317953486
 2,6171,6275082801,9295841587,703
 
Timing
Point in time8961,5823376064222,961
Over time1,721451712201,8655621584,742
2,6171,6275082801,9295841587,703

H1 2019

in € millionsRTL GroupPenguin
Random
House
Gruner +
Jahr
BMGArvatoBertels-
mann
Printing
Group
Bertels-
mann
Education
Group
Total
divisions1)
Revenue Sources        
Own products and merchandise641,5782912075172,045
Services185442171,8326521683,098
Advertising1,719153131,885
Rights and licenses1,1722882481,456
3,1401,6506692681,9076821688,484
 
Geographical Areas
Germany1,0081154451775043212,768
France687714210194321,072
United Kingdom12418356210471549
Other European countries6711465226555871,537
United States58494112128137551642,021
Other countries66258132516753537
 3,1401,6506692681,9076821688,484
 
Timing
Point in time9801,6064327010927133,237
Over time2,160442371981,7986551555,247
3,1401,6506692681,9076821688,484

Additional Disclosures on Financial Instruments

The principles and methods used for the fair value measurement remain unchanged compared to those used in the previous year. Only disclosures on financial instruments that are significant to an understanding of the changes in financial position and financial performance since the end of the last annual reporting period are explained below.

The following hierarchy is used to determine the fair value of financial instruments.

Level 1:
The fair value of the listed 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 yield 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 yield 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 mismatches to the standardized stock exchange contracts are reflected through interpolation or additions.

Level 3:
If no observable market data is available, fair value measurement is based primarily on cash flow-based valuation techniques. As a rule, so-called qualified financing rounds are used for minority stakes in the Bertelsmann Investments division. Listed financial instruments with contractual lockups are also based on level 3.

The measurement 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.

The option offered in IFRS 13.48 (net risk position) is used for measuring the fair value of financial derivatives. 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 values are managed based on a net position in view of their market or credit default risks.

The measurement category “fair value through profit or loss” mainly includes the minority stakes in start-ups and fund investments purchased by the Bertelsmann Investments division. The fair value of its listed investments is measured on the basis of their market values and of its unlisted investments, when possible, on the basis of observable prices obtained as part of the most recently implemented qualified financing rounds, which meet the minimum requirements for volume and participants, taking into account life and development cycles of the entity. The item also includes so-called fund-of-fund investments, which are also measured at fair value through profit or loss. The measurement of their fair values is based on the valuations of the external management as presented in regular reporting and taking into account a fungibility discount. The gains and losses resulting from changes in the fair value are recognized as other operating income in the item “Fair value measurement of investments.”

The market value of the 2001 profit participation certificates with a closing rate of 319.51 percent on the last day of trading in the first half of 2020 on the Frankfurt Stock Exchange was €908 million (December 31, 2019: €1,005 million with a rate of 353.40 percent) and, correspondingly, €31 million for the 1992 profit participation certificates with a rate of 180.00 percent (December 31, 2019: €34 million with a rate of 201.50 percent). The market values are based on level 1 of the fair value hierarchy.

In March 2020, a loan of €675 million with a term of up to 18 months was agreed upon with three banks and drawn down. The loan was used to cover short-term funding requirements in connection with the acquisition of the remaining interest in Penguin Random House and was repaid in May 2020. In addition, Bertelsmann carried out various financing measures in the first half of 2020 to ensure Group liquidity and to refinance pending capital market maturities ahead of schedule. In March 2020, an existing revolving syndicated credit facility was drawn down in the full amount of €1,200 million. Of this amount, €500 million was repaid in June 2020. In addition, bilateral credit facilities of €180 million were drawn down in the same month and a bilateral dual-currency loan in the amount of €200 million was agreed, which was drawn down in the amount of US$215 million. Furthermore, Bertelsmann entered into a loan of US$300 million in April 2020 with a term of up to one year.

In April 2020, Bertelsmann placed a fixed-interest publicly listed bond in the amount of €750 million with a term of eight years, and a floating rate promissory note in the amount of €100 million with a term of three years was agreed upon. In May 2020, Bertelsmann placed another fixed-interest publicly listed bond in the amount of €750 million with a term of 10 years. In addition, a €150 million promissory note with a term of seven years was agreed upon, €100 million of which is at a fixed rate and €50 million at a floating rate. A fixed-interest bond in the amount of €100 million with a term of seven years was also issued in May 2020 as part of a private placement.

In June 2020, the revolving syndicated credit facility was extended for a further year, until 2025.

On June 30, 2020, the cumulative market value of the listed bonds totaled €6,076 million (December 31, 2019: €4,648 million) with a nominal volume of €5,850 million (December 31, 2019: €4,350 million) and a carrying amount of €5,814 million (December 31, 2019: €4,327 million). The stock market prices are based on level 1 of the fair value hierarchy. On June 30, 2020, the total carrying amount of the private placements and promissory notes totaled €724 million (December 31, 2019: €375 million), and the total market value amounted to €765 million (December 31, 2019: €396 million). The fair values of private placements and promissory notes are determined using actuarial methods based on yield curves adjusted for the Group’s credit margin. This credit margin results from the market price for credit default swaps at the end of the respective reporting periods. Fair value is measured on the basis of discount rates ranging from -0.40 percent to 0.38 percent. The fair values of the private placements and promissory notes are based on level 2 of the fair value hierarchy.

Financial Assets Measured at Fair Value Categorized Using the Fair Value Measurement Hierarchy

in € millionsLevel 1:
Quoted prices
in active
markets
Level 2:
Observable
market
data
Level 3:
Unobservable
market
data
Balance as of
6/30/2020
Financial assets recognized at fair value380121,0381,430
Primary and derivative financial assets held for trading4848
Derivatives with hedge relation2626
380861,0381,504

The increase of financial assets measured at fair value based on level 1 results from the recognition of ordinary shares of Experian plc subsequent to the disposal of shares of informa Solutions GmbH. The ordinary shares of Experian plc are valued at €223 million as of June 30, 2020. Further details on the disposal of shares in informa Solutions GmbH are presented in the section “Acquisitions and Disposals.”


Financial Assets Measured at Fair Value Based on Level 3

in € millionsFinancial
assets
recognized
at fair value
Primary and
derivative
financial assets
held for trading
Total
Balance as of 1/1/20201,1181,118
Total gain (+) or loss (-)(13)(13)
– in profit or loss2929
– in other comprehensive income(42)(42)
Purchases125125
Sales/settlements(192)(192)
Transfers out of/into level 3
Balance as of 6/30/20201,0381,038
Gain (+) or loss (-) for assets still held at the end of the reporting period2727

The acquisitions mainly relate to various new and follow-up investments by the Bertelsmann Investments division, including in the digital service provider Deepexi and the tutoring app Feibai as well as the fintech company Rupeek. The major part of the disposals in the first half of the year relates, among other things, to a larger partial exit of the indirect investment in the Brazilian education company Afya via the Crescera Educacional II (formerly named Bozano Educacional II) fund and a complete exit from the music streaming platform Saavn.


Financial Liabilities Measured at Fair Value Categorized Using the Fair Value Measurement Hierarchy

in € millionsLevel 1:
Quoted prices
in active
markets
Level 2:
Observable
market
data
Level 3:
Unobservable
market
data
Balance as of
6/30/2020
Financial liabilities recognized at fair value through profit or loss3333
Primary and derivative financial liabilities held for trading127127
Derivatives with hedge relation1414
14133174

Financial Liabilities Measured at Fair Value Based on Level 3

in € millionsFinancial
liabilities rec-
ognized at fair
value through
profit or loss
Total
Balance as of 1/1/20203232
Total gain (-) or loss (+)
– in profit or loss
– in other comprehensive income
Purchases33
Settlements(2)(2)
Transfers out of/into level 3
Balance as of 6/30/20203333
Gain (-) or loss (+) for liabilities still held at the end of the reporting period

Income Taxes

The tax expense for the first half of 2020 was calculated in accordance with IAS 34 using the average annual tax rate expected for the whole of 2020, in relation to taxable earnings before taxes, which is calculated at 32.6 percent, according to Bertelsmann management’s current estimation. In addition, special effects were included in earnings before taxes and in current and deferred taxes, resulting in a different tax rate in the income statement. The tax expense for the first half of 2020 was lower than in the same period of the previous year, in particular due to lower taxable results.

Other Information

The Bertelsmann Group’s core business is subject to significant seasonal fluctuations as well as the macroeconomic effects of the coronavirus pandemic in the current financial year (further explanations are presented in the section “Effects of Coronavirus Pandemic on Condensed Interim Consolidated Financial Statements”). In a financial year unaffected by influences such as the coronavirus pandemic, higher revenues and a higher operating result tend to be expected in the second half of the year compared to the first half of the year. These higher revenues are due to increasing demand during the year-end holiday season, in particular in advertising-driven businesses and in the publishing business, as well as to the customary seasonality in the music business. This seasonality is potentially different for revenue in 2020 given the global economic development and current economic uncertainty. As a result of the global coronavirus pandemic, developments in the relevant markets over the first six months of 2020 deviated, in some cases significantly, from the current-year trend anticipated in the 2019 Combined Management Report. This primarily impacted the TV advertising, magazine and print markets. Therefore, the results for the first six months of the financial year 2020 are not necessarily predictive of future business performance.

Both the General Meeting of RTL Group and the General Meeting of Groupe M6 resolved to suspend dividend payments in the financial year 2020 to help secure liquidity throughout the year. However, Groupe M6 reserves the right to reassess this position in the autumn in line with the evolution of the overall situation and its impact on the business. Bertelsmann shareholders also resolved at the General Meeting to suspend dividend payments in 2020.

As of June 30, 2020, the investment in Atresmedia, which belongs to RTL Group, was tested for impairment in accordance with IAS 36. The fair value less costs of disposal amounted to €96 million (December 31, 2019: €139 million), which is assigned to level 1 fair value measurement. Management considers that the current share price of Atresmedia does not fully reflect its earnings potential, which is expected to include new digital and platform revenue streams and further content and channel exploitation opportunities. Therefore, the recoverable amount of Atresmedia on June 30, 2020, was based on the value in use determined using a discounted cash flow model. The further reduction of the share price, and the reduction of TV advertising spend due to the coronavirus pandemic, constituted trigger events for performing the impairment testing. The assumptions used in the valuation consider the following risks, resulting in a significant decrease in terminal EBITDA margin compared to previous financial projections: an ongoing challenging economic environment in Spain due to the coronavirus pandemic combined with increased competition, differences in viewing preferences and continued dependence on linear television. This dependence continues to exist despite promising developments in the content and streaming business. The current valuation resulted in an impairment loss of €60 million as of June 30, 2020. The carrying amount after impairment is €143 million. The impairment loss was measured on the basis of the following assumptions: a discount rate of 9.1 percent (December 31, 2019: 9.3 percent), a long-term growth rate of 0.0 percent (December 31, 2019: 0.0 percent) and different scenarios of sustainable EBITA margin that are between 0.0 percentage points and 2.0 percentage points below “pre-coronavirus” assumptions.

Notes on Segment Reporting

Segment reporting continues to reflect eight operating reportable segments (RTL Group, Penguin Random House, Gruner + Jahr, BMG, Arvato, Bertelsmann Printing Group, Bertelsmann Education Group and Bertelsmann Investments). For segment reporting, intercompany leases are presented as operating leases with income and expenses recognized using the straight-line method in accordance with IFRS 8, in line with internal management.

Reconciliation of Segment Information to Group Profit or Loss

in € millionsH1 2020H1 2019
Operating EBITDA1,0091,292
Amortization/depreciation, impairment and reversals on intangible assets, property, plant and equipment and right-of-use assets453461
Adjustments on amortization/depreciation, impairment and reversals on intangible assets, property, plant and equipment and right-of-use assets included in special items(2)(12)
Special items(247)19
EBIT805824
Financial result(184)(168)
Earnings before taxes621656
Income tax expense(133)(154)
Group profit or loss488502

Events after the Reporting Period

In July 2020, Bertelsmann issued a fixed interest bond in a private placement in the amount of €250 million with a term of two years. In addition, a bilateral credit facility of US$215 million was repaid in July 2020.