Annual Report 2017 At a Glance 2017 Key Figures (IFRS) in € millions 2017 2016 2015 2014 2013 Business Development Group revenues 17,190 16,950 17,141 16,675 16,179 Operating EBITDA 2,636 2,568 2,485 2,374 2,311 EBITDA margin in percent1) 15.3 15.2 14.5 14.2 14.3 Bertelsmann Value Added (BVA)2) 163 180 180 211 298 Group profit 1,198 1,137 1,108 572 885 Investments3) 1,776 1,262 1,293 1,601 1,997 Consolidated Balance Sheet Equity 9,119 9,895 9,434 8,380 8,761 Equity ratio in percent 38.5 41.6 41.2 38.9 40.9 Total assets 23,705 23,794 22,908 21,560 21,418 Net financial debt 3,479 2,625 2,765 1,689 681 Economic debt4) 6,213 5,913 5,609 6,039 4,216 Leverage factor 2.5 2.5 2.4 2.7 2.0 Dividends to Bertelsmann shareholders 180 180 180 180 180 Distribution on profit participation certificates 44 44 44 44 44 Employee profit sharing 105 105 95 85 101 Figures prior to 2016 are the most recently reported previous year’s figures. The previous year’s figures for Bertelsmann Value Added and Investments have been adjusted. Details are presented in the “Alternative Performance Measures” section in the Combined Management Report. The figures shown in the table are, in some cases, so-called Alternative Performance Measures (APM), which are neither defined nor described in IFRS. Details are presented in the “Alternative Performance Measures” section in the Combined Management Report. Rounding may result in minor variations in the calculation of percentages. 1) Operating EBITDA as a percentage of revenues. 2) Bertelsmann uses BVA as a strictly defined key performance indicator to evaluate the profitability of the operating business and return on investment. Bertelsmann Value Added is determined without taking into account the Bertelsmann Investments division and thus follows the definition applicable beginning in 2018. 3) Taking into account the financial debt assumed and payments from transactions with non-controlling interests without a change of control. 4) Net financial debt less 50 percent of the par value of the hybrid bonds plus pension provisions, profit participation capital and the present value of operating leases. Bertelsmann is a media, services and education company that operates in about 50 countries around the world. It includes the broadcaster RTL Group, the trade book publisher Penguin Random House, the magazine publisher Gruner + Jahr, the music company BMG, the service provider Arvato, the Bertelsmann Printing Group, the Bertelsmann Education Group and Bertelsmann Investments, an inter- national network of funds. The company has 119,000 employees and generated revenues of €17.2 billion in the 2017 financial year. Bertelsmann stands for entre- preneurship and creativity. This combination promotes first-class media content and innovative service solutions that inspire customers around the world. www.bertelsmann.com Interactive Online Report The Bertelsmann Annual Report can also be accessed online at: ar2017.bertelsmann.com As well as company information and an extensive financial section, the online report offers many extra features, including several videos and extracts. 2 Financial Information Financial Information 4 Combined Management Report 45 Consolidated Financial Statements 45 Consolidated Income Statement Fundamental Information about the Group 46 Consolidated Statement of Comprehensive Income 47 Consolidated Balance Sheet 5 Corporate Profile 48 Consolidated Cash Flow Statement 6 Strategy 49 Consolidated Statement of Changes in Equity 7 Value-Oriented Management System 50 Notes 8 Non-Financial Performance Indicators 128 Responsibility Statement Report on Economic Position 129 Auditor’s Report 10 Corporate Environment 11 Significant Events in the Financial Year 136 Corporate Governance 11 Results of Operations 14 Net Assets and Financial Position 139 Report of the Supervisory Board 18 Performance of the Group Divisions 26 General Statement by Company Management 144 Boards / Mandates on the Economic Situation 144 Supervisory Board 26 Alternative Performance Measures 147 Executive Board 29 Significant Events after the Balance Sheet Date 29 Risks and Opportunities 148 Additional Information 36 Outlook 148 Selected Terms at a Glance 38 Notes to the Financial Statements of 150 Financial Calendar / Contact/ Bertelsmann SE & Co. KGaA (in accordance Production Credits with HGB, German Commercial Code) 40 Combined Non-Financial Statement Bertelsmann Annual Report 2017 3 Combined Management Report Financial Year 2017 in Review Bertelsmann recorded positive business performance in 2017, achieving revenue growth and increases in operating EBITDA and Group profit. This development was accompanied by further strategic progress with Bertelsmann’s transformation into a faster-growing, more digital, more international and diversified Group. Group revenues rose by 1.4 percent to €17.2 billion (previous year: €17.0 billion), driven by organic growth of 1.7 percent. This was generated in particular by the TV, music, services and education businesses. The revenue share generated by the strategic growth businesses increased to 32 percent (previous year: 30 percent). Operating EBITDA of €2,636 million was above the high level of the previous year of €2,568 million, despite start-up losses for digital and new businesses, which, for Bertelsmann Education Group and RTL Group alone, amounted to €-69 million in total (previous year: €-71 million). RTL Group, BMG and Bertelsmann Education Group were mainly responsible for the improved earnings. The EBITDA margin improved from 15.2 percent in the previous year to 15.3 percent. Group profit increased from €1,137 million to €1,198 million. Economic investments during the reporting period increased to €1.8 billion (previous year: €1.3 billion), in particular as a result of the shareholding increase in Penguin Random House. For 2018, Bertelsmann again expects positive business performance and continued progress with the implementation of its strategy. Revenues in € billions Operating EBITDA in € millions Group Profit in € millions 20 17.1 17.0 17.2 3,000 2,485 2,568 2,636 1,200 1,108 1,137 1,198 15 2,250 900 10 1,500 600 5 750 300 0 0 0 2015 2016 2017 2015 2016 2017 2015 2016 2017 • Revenue growth of 1.4 percent, • Operating EBITDA increased by • Growth of Group profit of improved organic growth of 2.7 percent 5.4 percent despite higher 1.7 percent • Increase in EBITDA margin from tax expenses • Revenue increases at RTL Group, 15.2 percent to 15.3 percent • Improved operating result BMG, Arvato and Bertelsmann • Improved earnings at RTL Group, • Higher contribution to earnings Education Group Gruner + Jahr, BMG and generated by the fund businesses • Increased share of revenues gener- Bertelsmann Education Group ated by growth businesses 4 Financial Information Combined Management Report Fundamental Information about the Group In this Management Report, the Group is using the views. Furthermore, RTL Group owns SpotX, a programmatic option to combine the Group Management Report and video advertising platform. The publicly traded RTL Group the Management Report of Bertelsmann SE & Co. KGaA. S.A. is listed on the German MDAX index. This Combined Management Report outlines the business performance, including the business result and the position Penguin Random House is, based on revenue, the world’s of the Bertelsmann Group and Bertelsmann SE & Co. KGaA. largest trade book publisher, with more than 250 imprints Information about Bertelsmann SE & Co. KGaA in accordance across six continents. Its book brands include storied imprints with the German Commercial Code (HGB) will be detailed in a such as Doubleday, Viking and Alfred A. Knopf (United separate section. The Combined Management Report will be States); Ebury, Hamish Hamilton and Jonathan Cape (United published instead of the Group Management Report within Kingdom); Plaza & Janés and Alfaguara (Spain); Sudamericana the Bertelsmann Annual Report. (Argentina); and the international imprint Dorling Kindersley. Germany’s Verlagsgruppe Random House, which includes illustrious publishing houses such as Goldmann and Heyne, is not part of Penguin Random House from a legal point of Corporate Profile view, but is under the same corporate management and is part of the Penguin Random House division. Each year Bertelsmann operates in the core business fields of media, Penguin Random House publishes over 15,000 new titles services and education in around 50 countries worldwide. and sells more than 600 million print books, e-books and The geographic core markets are Western Europe – in audiobooks. particular, Germany, France and the United Kingdom – and the United States. In addition, Bertelsmann is strengthening Gruner + Jahr is one of Europe’s leading premium magazine its involvement in growth markets such as China, India and publishers. Its magazine portfolio includes established brands Brazil. The Bertelsmann divisions are RTL Group (television), such as “Stern,” “Brigitte” and “Geo” – and young brands like Penguin Random House (books), Gruner + Jahr (magazines), “Barbara,” “Beef” and Chefkoch. It also has products and BMG (music), Arvato (services), Bertelsmann Printing Group licenses such as the “Schöner Wohnen” furniture collection (printing), Bertelsmann Education Group (education) and and digital offerings in all publishing segments, from News Bertelsmann Investments (funds). to People to Living. In digital marketing G+J operates inter- national platforms (Ligatus, AppLike). Territory, one of the Bertelsmann SE & Co. KGaA is a capital-market-oriented but largest German communication agencies for brand content, is unlisted partnership limited by shares. As a Group holding also part of G+J. In France, G+J operates Prisma Media, the company, it exercises central corporate functions such as the country’s largest print and digital magazine publisher in terms specification and development of the Group’s strategy, capital of overall reach. G+J holds majority stakes in Motor Presse allocation, financing and management development. Internal Stuttgart and in DDV Mediengruppe in Saxony, and holds a corporate management and reporting follow the Group’s stake in Spiegel-Gruppe.