Financial Targets

Financial guidelines

The primary objective of Bertelsmann AG’s financial policy is to achieve a balance between financial security, return on equity and growth. Accordingly, the Group’s financing policy is based on the requirements of a “BBB+/Baa1” credit rating, and qualitative/quantitative criteria pertaining thereto. Credit ratings and transparency are of great importance to Bertelsmann’s financial security and independence.

The Bertelsmann Group is centrally financed by Bertelsmann AG and its financing company Bertelsmann U.S. Finance LLC. Bertelsmann AG is thus responsible for providing sufficient liquidity to Group companies. Bertelsmann AG also manages the issuance of guarantees and letters of comfort for Group companies. The Group forms a single financial unit, thereby optimizing capital procurement and investment opportunities.

Bertelsmann utilizes a financial control system employing quantitative financial targets concerning the Group’s economic debt and, to a decreasing extent, its capital structure. Key financial target is a dynamic leverage factor calculated as the ratio of economic debt to operating EBITDA (after modifications), and limited to a maximum of 2.5. Economic debt is defined as net financial debt plus provisions for pensions, profit participation capital and present value of operating leases.

As of December 31, 2010, the Group had a leverage factor of 2.3 (December 31, 2009: 3.2). Net financial debt was reduced by €880 million in the fiscal year and totaled €1,913 million as of December 31, 2010 (December 31, 2009: €2,793 million). The reason for this fall was the significant increase in operating earnings in the fiscal year combined with a strict cash orientation in business transactions, which yielded a high cash flow from operations. the economic debt came to €4,915 million, €1,109 million less than the previous year.

A further key financial target is a coverage ratio of more than 4, which for the year under review was 4.1 (previous year: 4.5). This metric is calculated as the ratio of operating EBITDA to the financial result. The Group’s equity ratio increased year-on-year from 30.9 percent to 34.5 percent.