Value-Oriented Management System

Bertelsmann’s primary objective is continuous growth of the company’s value through a sustained increase in profitability. To manage the Group, Bertelsmann has been using a valueoriented management system for many years, which focuses on revenues, operating earnings and optimal capital investment. For formal reasons, Bertelsmann makes a distinction between strictly defined and broadly defined operational performance indicators.

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, which are partially derived from the abovementioned indicators or are strongly influenced by these. These include the EBITDA margin and the cash conversion rate. The financial management system, with defined internal financing targets, is also part of the broadly defined value-oriented management system. Details of the expected development of performance indicators used in the broader sense are provided as additional information and are not included in the outlook.

To explain the business performance and to control and manage the Group, Bertelsmann also uses alternative performance measures that are not defined in accordance with IFRS (more details are given in the “Alternative Performance Measures” section).

Strictly Defined Operational Performance Indicators

To control and manage the Group, Bertelsmann uses revenues, operating EBITDA and BVA as performance indicators. Revenue is used as a growth indicator of businesses. Group revenues in the financial year 2017 rose by 1.4 percent to €17.2 billion (previous year: €17.0 billion). The organic growth was 1.7 percent.

A key performance indicator for measuring the profitability of the Bertelsmann Group and the divisions is the operating EBITDA. Operating EBITDA increased to €2,636 million (previous year: €2,568 million) in the reporting period.

Bertelsmann uses BVA for assessing the profitability of operations and return on invested capital. BVA measures the profit realized above and beyond the appropriate return on invested capital. BVA in the financial year 2017 was €121 million compared to the previous year’s figure of €147 million. The impact of the increase in average invested capital could only partially be offset by the improved year-on-year operating earnings.

From the 2018 financial year onward, BVA will be determined without taking into account the Bertelsmann Investments division. Based on this methodology, BVA for financial year 2017 was €163 million (previous year: €180 million).

Broadly Defined Performance Indicators

To assess business development, other performance indicators are used that are partially derived from revenues and operating EBITDA or are strongly influenced by these figures.

The cash conversion rate serves as a measure of cash generated from business activities, which should be between 90 percent and 100 percent as a long-term average. In the financial year 2017 the cash conversion rate was 92 percent (previous year: 93 percent).

The EBITDA margin is used as an additional criterion for assessing business performance. In the financial year 2017, the EBITDA margin of 15.3 percent was above the previous year’s level of 15.2 percent.

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 non-financial performance indicators (employees, corporate responsibility and similar topics) are not included in the broadly defined value-oriented management system. As they can only be measured to a limited extent, it is not possible to make any clear quantifiable statements concerning interrelated effects and value increases. For this reason, the non-financial performance indicators are not used for the management of the Group.

Strategy

Non-Financial Performance Indicators