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 (investments).

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’s strategic focus is on a fast-growing, digital, international and diversified Group portfolio. Since achieving important successes through the Group’s transformation first begun in 2012, the strategy was developed further in order to meet new challenges, such as growing competition from the US tech platforms. Since that time, the Group has been pursuing five growth priorities: creating national media champions, expanding global content businesses, growing through global services, expanding the online education business,and developing the investment portfolio. The Group aims to grow in existing and new lines of business and through organic initiatives and acquisitions. This strategy will be implemented with a framework of technology and data and by enhancing capabilities through targeted upskilling measures and with cooperation agreements and alliances.

In the first half of 2021, Bertelsmann made considerable progress in all five of the growth priorities. The future merger between RTL Deutschland and Gruner + Jahr is a major step towards creating national media champions. The planned mergers of RTL Nederland and Talpa Network in the Netherlands and of Groupe M6 and Groupe TF1 in France will also function to create national media champions in the European markets. Most recently, RTL Deutschland reinforced its market position by acquiring the outstanding shares in Super RTL; G+J sold its French subsidiary Prisma Media to the French media group Vivendi. Besides acquisitions and disposals, cooperation and strategic partnerships are also important. Super RTL and Gulli announced a strategic partnership for the European licensing market, and the Spiegel group and UFA entered into a content cooperation agreement. Furthermore, continued investments were made to further the expansion of the global content business. The planned acquisition of US book publisher Simon & Schuster by Penguin Random House represents a strategic milestone. Fremantle also invested heavily and significantly expanded its position in the Scandinavian market through the planned acquisition of a total of 12 production firms from Nordic Entertainment Group. BMG and the investment company KKR announced an alliance for the acquisition of music rights. Global services were also further expanded. The customer experience company Majorel reported strong, profitable growth with its global customers and also provided support in the scheduling of vaccination appointments. Arvato Supply Chain Solutions invested in the expansion and automation of its global network of locations. Arvato Financial Solutions reported positive business performance in the field of receivables management and with its range of “purchaseon- account” services, and Arvato Systems increased its activities in the artificial intelligence and IT security lines of business. Bertelsmann Printing Group renewed existing customer contracts and acquired new partners for its DeutschlandCard bonus program. Additionally, Bertelsmann increased its involvement in the rapidly growing Brazilian education market. The acquisition of 25 percent of the shares and 46 percent of the voting rights in Afya, the leading provider of medical education and training in Brazil, will reinforce the online education area. Bertelsmann increased its investment speed with 46 new and follow-on investments in the first half of 2021. As of June 30, 2021, Bertelsmann Investments held in total 269 investments in companies and funds through its four international funds.

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 2020 Combined Management Report.

Revenues as a growth indicator of the businesses increased in the first half of 2021 by 10.7 percent to €8,691 million (H1 2020: €7,848 million). Organic revenue growth was 16.6 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 operating EBITDA is a meaningful performance indicator. During the reporting period, operating EBITDA increased to €1,417 million (H1 2020: €994 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 in 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 €415 million (H1 2020: €436 million), which were not included in special items. A flat tax rate of 30 percent was assumed in order to calculate NOPAT of €702 million (H1 2020: €391 million), which is used to calculate BVA. Cost of capital is the product of the average level of capital invested and the weighted average cost of capital (WACC). The average level of capital invested totaled €15.8 billion as of June 30, 2021 (H1 2020: €16.4 billion). The uniform WACC after taxes is 8 percent, resulting in a cost of capital of €630 million (H1 2020: €657 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 2021, BVA rose to €121 million (H1 2020: €-222 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 Investment 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.