ProSiebenSat.1 Group continuously optimizes its financing structure. In our M&A activities, we follow a defined target range for the leverage ratio. In 2017, the ratio was near the lower end of the range with 1.6. The Group has a comfortable level of liquidity as well as a solid asset and capital structure.
Borrowings and Financing Structure
ProSiebenSat.1 Group uses various financing instruments and practices active financial management. As of December 31, 2017, debt capital accounted for 81% of total equity and liabilities (December 31, 2016: 78%). At 60% or EUR 3,185 million, the majority of debt capital was attributable to the Group’s non-current and current financial liabilities (December 31, 2016: 62%). Analysis of Assets and Capital Structure
The Group continuously monitors and assesses developments on the money and capital markets. Thus, in April 2017, ProSiebenSat.1 extended the duration of the term loan and the revolving credit facility (RCF) until April 2022 and at the same time increased the nominal volume of the RCF by EUR 150 million to EUR 750 million. ProSiebenSat.1 Group also adjusted other contract terms; for example, the previous financial covenant was eliminated. In addition, ProSiebenSat.1 has notes in the amount of EUR 600 million. The notes are listed on the regulated market of the Luxembourg stock exchange (ISIN DE000A11QFA7). The coupon of the notes is 2.625% per annum. In 2016, the company took out three syndicated promissory notes totaling EUR 500 million with maturities of seven years (EUR 225 million at a fixed interest rate and EUR 50 million at a variable interest rate) and ten years (EUR 225 million at a fixed interest rate).
092 / Debt Financing Instruments and Maturities as of December 31, 2017 in EUR m
1 Not drawn.
Interest payable on the term loan and the RCF is variable and based on Euribor money market rates plus an additional credit margin. In this context, the Group uses derivative financial instruments in the form of interest rate swaps and interest rate options to hedge against interest rate changes caused by the market. As of December 31, 2017, the proportion of fixed interest was approximately 98% of the entire long-term financing portfolio (December 31, 2016: approx. 98%). The average fixed rate of the interest rate swaps was 1.9% per annum as of December 31, 2017. The average interest rate ceiling of the interest rate caps was 0.0% per annum.
Ratings represent an independent assessment of an entity’s credit quality. However, rating agencies do not take ProSiebenSat.1 Group’s loan agreement or notes into account in their credit ratings.
ProSiebenSat.1 Group has also concluded lease contracts for property at the Unterföhring site. Under IFRS, these are largely classified as finance leases. This real estate is capitalized as property, plant and equipment and the respective leasing obligations are recognized as other financial liabilities. The real estate leases end in 2019 at the earliest. There are also smaller-scale leases for technical equipment. ProSiebenSat.1 Group reported liabilities for finance leases totaling EUR 65 million as of December 31, 2017 (previous year: EUR 72 million). There were no other significant off-balance sheet financing instruments. Notes, Note 30 “Other financial obligations,” page 226
Financing Analysis
The leverage ratio is a key indicator for Group-wide financial and investment planning. It reflects the ratio of net debt to adjusted EBITDA over the last twelve months (LTM adjusted EBITDA). The target is a ratio between 1.5 and 2.5 at the end of the relevant year. The target range may be exceeded for a short period of time as a result of fluctuations during the year.
093 / Group Net Financial Debt1 in EUR m
094 / Leverage Ratio1
1 After reclassification of cash and cash equivalents of companies held for sale due to portfolio adjustment. Net financial debt is defined as total borrowings minus cash and cash equivalents and certain current financial assets. The leverage ratio is derived by calculating the ratio of net financial debt to adjusted EBITDA of the last twelve months (LTM adjusted EBITDA).
As of December 31, 2017, net financial debt fell to EUR 1,632 million (December 31, 2016: EUR 1,913 million). The leverage ratio was thus at the lower end of the target range at 1.6 (December 31, 2016: 1.9). This development reflected the change in cash flows. Analysis of Liquidity and Capital Expenditure
095 / Principles and Objectives of Financial Management
The Group Finance & Treasury department centrally controls financial management throughout the Group and pursues the following objectives:
- to secure financial flexibility and stability, i.e. to maintain and optimize the Group’s funding ability,
- to ensure that the entire Group remains solvent by managing
- its liquidity efficiently across the organization,
- to manage financial risks by using derivative financial instruments.
The Group financial management covers the capital structure management and Group-wide funding, cash and liquidity management, and the management of market price risks, counterparty risks and credit default risks. This includes the following tasks:
- Capital structure: In connection with capital structure management at ProSiebenSat.1 Group, managing the leverage ratio is given particular priority. The Group has defined a target range of 1.5 to 2.5 and takes into account factors such as the level of market receptivity, funding terms and conditions, flexibility or restrictions, diversification of the investor base and maturity profiles in its choice of suitable financing instruments. ProSiebenSat.1 Group manages its funds on a centralized basis.
- Cash and liquidity management: As part of its cash and liquidity management, the Group optimizes and centralizes cash flows and secures liquidity across the Group. Cash pooling is an important tool here. Using rolling, Group-wide liquidity planning ProSiebenSat.1 Group captures and forecasts both operating cash flows and cash flows from non-operating activities, thus deriving liquidity surpluses or requirements. Liquidity requirements are covered either by existing cash positions or the revolving credit facility (RCF).
- Management of market price risks: The management of market price risks comprises centrally managed interest rate and currency management. In addition to cash instruments, derivatives in the form of conditional and unconditional forward transactions are deployed. These instruments are used for hedging purposes and serve to limit the effects of interest and currency volatility to consolidated net profit and cash flow.
- Management of counterparty and credit default risks: The management of counterparty and credit default risks centers on trading relationships and creditor exposure to financial institutions. When entering into trading transactions, ProSiebenSat.1 pays attention to ensuring that business is widely diversified involving counterparties of sufficiently high credit quality. For this purpose, the Group draws on external ratings supplied by international agencies. The Group’s risk with respect to financial institutions arises primarily from its investment of cash and cash equivalents and from its use of derivatives as part of its interestrate and currency management activities.
Analysis of Liquidity and Capital Expenditure
|
Q4 2017 |
Q4 2016 |
2017 |
2016 |
|||||||||
|
|||||||||||||
Result from continuing operations |
167 |
177 |
481 |
452 |
|||||||||
Result from discontinued operations |
–/– |
0 |
–/– |
–42 |
|||||||||
Cash flow from operating activities of continuing operations |
665 |
618 |
1,621 |
1,619 |
|||||||||
Cash flow from operating activities of discontinued operations |
–/– |
0 |
–/– |
–42 |
|||||||||
Cash flow from investing activities of continuing operations |
–422 |
–602 |
–894 |
–1,623 |
|||||||||
Free cash flow of continuing operations |
243 |
16 |
728 |
–4 |
|||||||||
Free cash flow of discontinued operations |
–/– |
0 |
–/– |
–42 |
|||||||||
Free cash flow (total) |
243 |
16 |
728 |
–46 |
|||||||||
Cash flow from financing activities of continuing operations |
–12 |
942 |
–426 |
584 |
|||||||||
Effect of foreign exchange rate changes on cash and cash equivalents |
–5 |
3 |
–14 |
0 |
|||||||||
Change in cash and cash equivalents total |
226 |
962 |
288 |
537 |
|||||||||
Cash and cash equivalents at beginning of reporting period |
1,3331 |
309 |
1,271 |
734 |
|||||||||
Cash and cash equivalents available for sale |
7 |
–/– |
7 |
–/– |
|||||||||
Cash and cash equivalents at end of reporting period2 |
1,552 |
1,271 |
1,552 |
1,271 |
|||||||||
In the financial year 2017, ProSiebenSat.1 Group generated cash flow from operating activities of EUR 1,621 million (previous year: EUR 1,619 million). This nearly stable development in operating cash flow was caused by opposing effects: While the increased earnings and lower payments for interest and taxes had a positive impact, there was a rise in working capital. This was mainly due to higher receivable portfolios and changes in program liabilities.
096 / Investments by Segment1 in %, 2016 figures in parentheses
1 Investments by segment before M&A activities.
Detailed information on off-balance-sheet investment obligations can be found in the Notes, Note 30 “Other financial obligations,” page 226.
The cash flows from investing activities resulted in an investing cash flow of EUR 894 million for the financial year 2017. Cash outflow thus decreased by 45% or EUR 729 million compared to the previous year. (Fig. 097)
- In 2017, cash inflow from the sale of consolidated subsidiaries amounted to EUR 473 million (previous year: EUR –11 million). It includes the net cash inflow from the sale of Etraveli of EUR 469 million and another EUR 3 million from the sale of COMVEL.
- Cash outflow from additions to the scope of consolidation amounted to EUR 197 million (previous year: EUR 420 million) due to lower purchase price payments for acquisitions. This mainly reflects purchase price payments for the acquisition of Jochen Schweizer, Gravitas and ATV.
Assets resulting from initial consolidations are not reported as segment-specific investments. Funds used for the acquisition of the initially consolidated entities are shown as “cash outflow from additions to the scope of consolidation.”
- The cash outflow for the acquisition of programming rights amounted to EUR 1,048 million. This is an increase of 6% or EUR 56 million compared to 2016. Most of the programming investments (97%) were made in the Broadcasting German-speaking segment again (previous year: 97%), with 62% being used for licensed programming (previous year: 59%) and 38% for commissioned productions (previous year: 40%).
Programming investments are a focal point in investing activities. In addition to the purchasing of licensed formats and commissioned productions, inhouse formats secure the Group’s programming supply. They are based on the development and implementation of own ideas and, unlike commissioned productions, are produced primarily for broadcasting in the near future. For this reason, they are recognized immediately as an expense in cost of sales and are not considered as an investment.
- Investments in property, plant and equipment also increased to EUR 44 million (+ 21% or EUR 8 million year-on-year). Most of this was attributable to the Broadcasting German-speaking segment (2017: 71%; previous year: 66%) and was related to technical facilities and leasehold improvements at the Unterföhring site. In 2017, a total of EUR 112 million went to other intangible assets (–9% or EUR 11 million year-on-year). The Group invested in other intangible assets primarily in the Digital Entertainment segment (2017: 43%, previous year: 48%).
The free cash flow for 2017 increased significantly by EUR 732 million to EUR 728 million. The main reasons for the high free cash flow are the cash inflow from the sale of Etraveli and a year-on-year decrease in the cash outflow from additions to the scope of consolidation. Before M&A measures, the figure was EUR 468 million (previous year: EUR 485 million). The decrease is primarily based on the cash outflow for the acquisition of programming rights, countered by the cash inflow from the sale of media-for-equity assets.
Free cash flow: Total cash and cash equivalents generated in operating business less the balance of cash used and generated in the context of investing activities. Free cash flow before M&A: Free cash flow adjusted for cash used and generated by M&A transactions (excl. transaction costs) related to majority acquisitions that are carried out and planned and the purchase and sale of investments accounted for using the equity method.
Cash flow from financing activities amounted to minus EUR 426 million (previous year: EUR 584 million). In 2017, the dividend payment led to cash outflow of EUR 435 million (previous year: EUR 386 million). This was offset by a capital increase at the digital studio Studio71. At the beginning of 2017, the Group added a further two partners, TF1 Group and Mediaset, for Studio71 and generated a cash inflow of EUR 51 million. The high figure from the previous year was attributable to financing measures. For example, the Group used the advantageous conditions on the financial markets in 2016 to increase its equity by issuing new shares. ProSiebenSat.1 also issued promissory notes in the fourth quarter of 2016.
The cash flows described resulted in an increase in cash and cash equivalents year-on-year. At EUR 1,552 million, cash and cash equivalents were up 22% or EUR 281 million year-on-year. The Group thus has a comfortable level of liquidity.
098 / Change in Cash and Cash Equivalents in EUR m
Analysis of Assets and Capital Structure
With an equity ratio of 19% (December 31, 2016: 22%), ProSiebenSat.1 Group has a solid asset and capital structure. Total assets remained almost stable year-on-year, amounting to EUR 6,569 million as of December 31, 2017 (–1% or EUR 35 million). The decrease in financial assets was compensated by higher cash and cash equivalents in particular.
099 / Structure of the Statement of Financial Position in %
In accordance with IFRS 5, assets and liabilities held for sale due to portfolio adjustments are reported separately in the statement of financial position.
- Current and non-current assets: As of December 31, 2017, goodwill decreased by 2% to EUR 1,831 million (December 31, 2016: EUR 1,860 million). Its share in total assets was unchanged at 28%. Other intangible assets declined by 9% to EUR 745 million (December 31, 2016: EUR 817 million). This decrease was mainly due to the disposal of Etraveli and Comvel, while the initial consolidation of the Austrian station ATV, Jochen Schweizer GmbH and Gravitas Ventures, LLC had an opposite effect on intangible assets.
Other non-current financial and non-financial assets fell by 48% to EUR 179 million (December 31, 2016: EUR 342 million), primarily due to valuation effects from currency hedging instruments. Other current financial and non-financial assets also decreased in this context. At a total of EUR 105 million, they were down EUR 44 million year-on-year (December 31, 2016: EUR 148 million). In contrast, current trade receivables increased by EUR 55 million or 12% to EUR 501 million (December 31, 2016: EUR 446 million).
Programming assets decreased by 9% year-on-year and amounted to EUR 1,198 million (December 31, 2016: EUR 1,312 million). This corresponds to a share of 18% of total assets (December 31, 2016: 20%). In addition to goodwill, programming assets are among ProSiebenSat.1’s most important assets and comprise non-current and current programming assets. Notes, Note 20 „Programming assets“, page 213
Cash and cash equivalents increased by 22% or EUR 281 million to EUR 1,552 million compared to December 31, 2016. This high level of liquidity reflects the development of cash flows.
Employee potential, organizational advantages, own brands or long-term customer relationships are important success factors, which are largely non-financial. On the other hand, we capitalize certain internally generated intangible assets to a limited extent. Further information can be found in the Notes in the “Summary of significant accounting policies”, page 242.
- Equity: Despite the positive consolidated net profit, equity declined by 13% or EUR 180 million to EUR 1,252 million. This development firstly reflects the dividend distribution of EUR 435 million in May 2017 (previous year: EUR 386 million) and secondly the decreasing effects of currency hedging recognized outside profit or loss. The corresponding equity ratio was 19% (December 31, 2016: 22%).
- Current and non-current liabilities: Debt capital increased slightly compared to the closing date in 2016. Overall, liabilities and provisions went up by 3% to EUR 5,317 million compared to December 31, 2016 (EUR 5,172 million). The main reason for this is the increase in other financial liabilities due to higher liabilities from put options and valuation effects from currency hedging instruments. Non-current and current financial liabilities reported in debt still totaled EUR 3,185 million.
Information on the cost of capital can be found in the Notes, Note 16 “Goodwill”, page 205, Information on fair values in the “Summary of significant accounting policies”, page 244.
When applying accounting principles, recognizing income and expenses and presenting items in the financial statements, assumptions and estimates need to be made to a certain extent. Detailed information on the use of assumptions and estimates is disclosed in Note 1, page 182, and the other relevant Notes.
100 / Overall Assessment of the Business
2017 marked another record year for ProSiebenSat.1 in which we achieved our profitability targets. In doing so we generated approximately half of our revenues with business models which are not primarily based on the sale of TV advertising time. At the same time, 2017 was also a challenging year in which we corrected our original revenues guidance and further developed our strategy. In general the TV advertising market was shaped by sector-specific effects and despite good general economic conditions did not realize the anticipated momentum. However, in the strategically relevant business areas outside the TV segment, we grew strongly overall and synergistically expanded our portfolio on the basis of acquisitions. Despite various M&A measures, the leverage ratio remained in the target corridor. At the time the Group Management Report was compiled, ProSiebenSat.1 Group is characterized by overall very good earnings, financial position and performance.
dividend depends, among other things, on the profitability, economic situation and dividend policy of the company. The basis of assessment for the distribution is the profit calculated according to commercial law.