The GfK Group stands its ground in the financial and economic crisis
- At EUR 1,164.5 million, GfK Group sales almost at the prior year’s level
- Margin of 12.6% exceeds expectations
- Consolidated income reaches EUR 60.5 million, as a result of low tax ratio of 19.8%
- Implemented cost-cutting measures and the BISS fitness and efficiency program record successes
- The outlook for 2010: sales growth of approx. 3% and a higher margin of up to 13.0%
Nuremberg, March 31, 2010 – In financial year 2009, the GfK Group was able to stand its ground against the background of the global financial and economic crisis. The margin for the year as a whole was a pleasing 12.6%, which exceeded GfK’s forecast and was close to the prior year’s margin of 13.0%. The pleasing company growth is attributable both to successful cost management and to the positive effects of the BISS fitness and efficiency program. The Retail and Technology sector achieved outstanding growth in financial year 2009, and in addition, a recovery in overall operating business was observed.
At the Annual General Meeting taking place on May 19, 2010, the Supervisory and Management Boards will be proposing a dividend pay-out amounting to EUR 0.30 per no-par share for financial year 2009. This represents a pay-out ratio of around 20%, which is in line with the dividend policy of recent years.
To optimize income on a long-term basis and in all sectors, GfK launched BISS, its Group-wide fitness and efficiency program in 2008. Through a variety of measures, the around 30 cross-sector and international projects are set to improve the efficiency of processes and cut costs. In 2009, BISS led to a rise in sales of EUR 6.8 million and cost savings of EUR 20.7 million. These were countered by project expenses of EUR 23.6 million and depreciation/amortization of EUR 0.2 million, resulting in an overall improvement in EBIT of EUR 3.7 million in the first year alone.
As a result of a tax ratio which, at 19.8%, was considerably lower than in the prior year, the consolidated total income amounted to EUR 60.5 million.
Sales and income
With sales of EUR 1,164.5 million, GfK achieved the adjusted forecast given in its half-year report 2009 and was roughly on a par with the previous year. Overall, sales declined by 4.6%. While sales through acquisitions rose by 2.0%, currency effects reduced these by 0.6%. The organic decrease in sales amounted to 6.0%.
The adjusted operating income declined by EUR 11.5 million, from EUR 158.7 million to EUR 147.2 million. The operating margin stood at 12.6%, which was higher than forecast in the half-year report 2009 and close to the previous year’s margin of 13.0%.
The adjusted operating income – henceforth referred to as "income” – is the indicator used to measure the success of the GfK Group. Adjusted operating income is reconciled with operating income by taking into account the highlighted items, which are deducted from the adjusted operating income. The highlighted items for the reporting year total EUR 58.3 million, which is up from the prior year’s figure of EUR 29.8 million. Highlighted items include write-ups and amortization on hidden reserves disclosed as part of purchase price allocation amounting to EUR 27.5 million (2008: EUR 24.1 million). They also include costs relating to the BISS fitness and efficiency program of EUR 16.0 million (2008: EUR 5.8 million).
Operating income fell year-on-year by EUR 40.0 million, from EUR 128.9 million to EUR 88.9 million.
ebitda amounted to EUR 159.1 million in financial year 2009 compared with EUR 192.0 million in the previous year.
ebit in the GfK Group decreased to EUR 92.8 million in 2009 compared to EUR 132.8 million in 2008.
At EUR 3.9 million, income from participations corresponds to the previous year’s figure.
Other financial income, which is the balance of financial income and expenses, amounted to EUR -17.3 million in financial year 2009. This represents an improvement of EUR 2.5 million on the previous year, when other financial income amounted to EUR -19.8 million. The fall in interest rates had a positive impact in particular.
Overall, the above effects led to a reduction in income from ongoing business activity of 33.3% from EUR 113.0 million to EUR 75.5 million in 2009.
At 19.8%, the income tax ratio was 7.6 percentage points below the previous year’s ratio of 27.4%. This is primarily attributable to a significant increase in deferred tax income.
The GfK Group’s consolidated total income amounted to EUR 60.5 million in 2009 compared with EUR 82.0 million in the previous year. This equates to a decline of 26.2%.
Assets
The total assets of the GfK Group increased year-on-year by EUR 74.8 million to EUR 1,521.4 million.
The equity ratio increased as at December 31, 2009 by 1.7 percentage points to a very solid 36.3% (2008: 34.6%).
Finance and investment
In 2009, GfK spent EUR 106.7 million on investments (2008: EUR 101.5 million). Of this investment, EUR 49.0 million (2008: EUR 50.5 million) related essentially to the procurement of software, office equipment and other tangible assets and EUR 55.1 million (2008: EUR 50.6 million) to the acquisition of companies and other business units.
The cash flow from ongoing operating activity stood at EUR 134.7 million (previous year: EUR 145.8 million). The considerable improvement in cash flow from operating receivables and liabilities to EUR 9.7 million after EUR -10.1 million in the previous year meant that the drop in cash flow from ongoing operating activity was significantly lower than the decline in consolidated income.
Taking account of expenses relating to capital expenditure of EUR 49.0 million, free cash flow totaled EUR 85.7 million (2008: EUR 95.3 million). The acquisitions carried out in 2009 were therefore fully financed.
Net indebtedness, defined as the balance of cash, cash equivalents and short-term securities less interest-bearing liabilities and pension obligations, rose by EUR 18.3 million from EUR 481.5 million to EUR 499.8 million. In addition to higher future purchase price obligations for company acquisitions, this rise was also due to the increase in liabilities to banks.
Sectors: focus on consumers and markets
custom research: Custom Research is the sector with the highest sales in the GfK Group and generated sales totaling EUR 709.2 million in the reporting period. Sales were affected by the impact of the financial and economic crisis and declined by 9.4% year-on-year. Of this downturn in sales, 10.4 percentage points were organic in origin and 1.4 percentage points due to currency effects. Acquisitions added 2.4 percentage points to sales. Sales were lower than expected as a result of budget cuts and aggressive price negotiations.
Despite the problems caused by the financial and economic crisis, the sector recorded positive development. The regions Asia and the Pacific and Latin America in particular achieved pleasing sales growth. Furthermore, the GfK Group strengthened its network in Western Europe/Middle East/Africa and North America with the acquisition of a majority stake in dmrkynetec. The sector benefited from successful contract renewals in the areas advanced business solutions, category management, IT and telecommunications.
The restrained sales situation also affected income. In 2009, income fell by EUR 16.6 million to EUR 39.5 million. Of this fall, 30.2 percentage points were attributable to an organic decline in sales, while currency effects reduced income by 1.9 percentage points and acquisitions increased income by 2.6 percentage points. The margin amounted to 5.6% for the full year. The sector responded to the repercussions of the financial and economic crisis with extensive cost-cutting measures. Savings were achieved on investments, data procurement, production and delivery as well as in personnel expenses. As a result, the sector successively improved the margin over the course of the year to come close to the previous year’s figure of 7.2%.
retail and technology: Despite the global financial and economic crisis, the sector continued its successful course of the previous year in 2009. Retail and Technology increased sales by EUR 21.7 million to EUR 325.8 million in the year as a whole. Of the total growth of 7.2%, 4.3 percentage points were attributable to organic development. Currency effects accounted for 1.0 percentage point of total growth and acquisitions for a further 1.9 percentage points. This pleasing sales growth is based on the global production and reporting system, GfK StarTrack, which facilitates cost-effective production at the same standards worldwide.
In general, the development of business activities with major clients was pleasing. Here it was possible to conclude most contracts with a higher order volume, while budget cuts were recorded for some smaller clients. The major portion of sales growth was achieved in Asia and the Pacific. Moreover, the sector achieved considerable growth rates in North America, Latin America and Germany. The acquisition of the majority shareholding in Etilize and the acquisition of the American contact lens panel C.L.E.A.R. from market research organization The Nielsen Company helped strengthen the presence of Retail and Technology in North America. Only the region Western Europe/Middle East/Africa reported a decline in sales. In Switzerland, GfK Switzerland transferred surveys in the fast moving consumer goods (FMCG) segment to The Nielsen Company.
In financial year 2009, there was a disproportionately high increase in income of 16.0% to EUR 95.9 million in this sector, which has the highest income in the GfK Group. At 12.0 percentage points, most of the rise in income was attributable to organic growth. In addition, acquisition-related changes added 4.5 percentage points to income. In contrast, currency effects reduced income development by 0.4 percentage points.
The margin amounted to an excellent 29.4% in 2009, thereby exceeding the previous year’s high value of 27.2%.
media: Sales in the sector in the full year declined by 2.9% compared with the previous year to EUR 126.4 million. Apart from positive currency effects amounting to 0.4 percentage points, sales reduced in organic terms by 3.3 percentage points. In the regions Central and Eastern Europe as well as North America, development in sales remained below expectations. The decline in sales in North America is attributable to the difficult market environment in the print sector. The North American subsidiary GfK MRI has already adopted a comprehensive new strategy to counter this development. To take account of changing customer requirements and develop new business potential, work began on setting up the AdMeasure product, which will be concluded by the end of 2011. This is set to measure the effectiveness of advertising in the print media based on continually collected data. The Media sector recorded pleasing sales growth in Germany, especially with the German print media. In addition, GfK renewed contracts to measure media usage. The existing TV audience measure contract was extended by a year in the Netherlands and by three years in Austria.
Compared with the previous year (EUR 23.8 million), income declined during the reporting period to EUR 16.6 million. Currency effects brought about an improvement of 3.2 percentage points, while development in organic terms reduced growth by 33.5 percentage points. The decline in income is partly due to expenses for establishing AdMeasure in North America, launching the new metering technology TC Score in Germany and for special production and evaluation software as well as for special survey hardware.
The sector achieved a margin of 13.1% in 2009 (2008: 18.3%).
other: Sales in the Other division amounted to EUR 3.1 million (2008: EUR 3.5 million) in the reporting period. The income shortfall stood at EUR 4.8 million (2008: EUR 3.7 million). Income was depressed by expenses for consultancy and insurance as well as for further development of the IT structure as part of the IT strategy. This was partly offset by savings in personnel expenses, travel expenses and materials, copying and printing costs.
Regions: Strong growth in the future markets
The GfK Group’s network of subsidiaries covers over 100 countries worldwide. In geographic terms, the business is divided into six regions:
germany: GfK is the clear market leader in Germany although sales by the GfK companies in this region declined by 4.7% overall to EUR 301.3 million in financial year 2009.
western Europe/middle east/africa: GfK generated the highest contribution to sales in financial year 2009 in this region. Overall, sales here fell by 6.0% to EUR 458.1 million. In organic terms, sales declined by 5.1 percentage points, while currency effects reduced sales by 2.5 percentage points. Acquisitions increased sales by 1.6 percentage points.
central and eastern europe: The GfK companies in the region achieved sales totaling EUR 71.7 million in financial year 2009 compared with sales of EUR 87.2 million in the previous year. In local currency, sales fell by 5.7% and by 17.8% in euros. This development is essentially due both to the weak economic environment and the sharp depreciation of the Polish zloty and Russian ruble against the euro. There was no acquisition-related growth in this region.
north america: GfK generated sales of EUR 207.2 million in North America compared with EUR 219.7 million in financial year 2008. Towards the end of financial year 2009, the hitherto strong euro fell against the US dollar, which reduced positive currency effects. For the full year, positive currency effects increased sales by 5.0 percentage points. Against the backdrop of extraordinarily difficult economic framework conditions, sales dropped by 17.8 percentage points in organic terms during the reporting period. Acquisitions increased sales by 7.0 percentage points.
latin america: Compared to the previous year, the GfK Group increased its sales by a pleasing 11.0 percentage points to EUR 39.4 million in the region Latin America during the reporting period. With organic growth of 11.0%, this region reported the highest organic growth rate in the GfK Group. Currency effects reduced sales by 2.1 percentage points, while acquisitions increased sales by 2.2 percentage points.
asia and the pacific: GfK generated the highest sales growth in financial year 2009 in this region. There was a strong rise in sales of 16.1% from EUR 74.8 million in 2008 to EUR 86.9 million in 2009. Organic sales growth stood at a pleasing 8.9 percentage points. Acquisitions increased sales by 1.1 percentage points and positive currency effects by 6.1 percentage points.
Employees: growth in Asia and the Pacific and Latin America
As at the end of financial year 2009, the number of employees in the GfK Group amounted to 10,058. This is a rise of 366 employees, or 3.8%, on the previous year and results mainly from acquisitions and new consolidations. 8,268 personnel were employed at foreign GfK companies, an increase of 322 on the previous year. In total, 82.2% of GfK employees work outside Germany, continuing the trend towards internationalization of the workforce. In regional terms, Asia and the Pacific and Latin America recorded the biggest increase in personnel numbers. At sector level, only the Retail and Technology sector showed growth in personnel numbers.
Significant events occurring after year-end 2009
In February 2010, the Supervisory Board of GfK SE extended the contract of Management Board member Debra A. Pruent, who is co-responsible for the Custom Research sector, by five years. The new contract applies from January 1, 2011 to December 31, 2015.
Outlook
Even though the market research sector was unable to escape the macro-economic conditions, there are muted positive signs of a recovery in 2010. The decline in sales at GfK stood at 4.6% in 2009. Another optimistic sign is the distinctly upward trend in GfK’s sales curve in the last quarter and at EUR 57.4 million, quarterly income at the end of 2009 was up 5.3% on the same period in 2008.
In addition to sales losses, the global recession has led to a shift in content. A glance at the most important market research market, the USA, shows that for cost reasons, an increasing number of surveys are being carried out online rather than as telephone interviews. Tight budgets have stoked this online trend. In addition to the cost effect, clients are growing accustomed to the speed at which results are delivered and are increasingly demanding this of traditional methods as well. The crisis has also fostered a willingness to try out something new. Never before has the call for analysis of social media (forums, networks, blogs) been as loud as in 2009. The Internet will therefore not only continue to gain ground as a survey platform, but will also become increasingly important as a source of information for companies. It is the task of market research to offer clients the instruments they need to analyze the communications of customers on the web.
Evaluation of information and consulting expertise are particularly important in an adverse economic environment, as not every new method or new technology is equally suitable for all target groups and all topics. With the wealth of accessible information to be surveyed, the services offered by market research will not be limited to just obtaining information on an optimal basis, and market researchers will increasingly tend to become information specialists and experts in consumer behavior.
One positive impact of the short recession and slow development of sales in the industrialized nations on the market research industry will be that many international companies will be hoping for growth in the emerging countries. However, growth in new sales markets is only feasible in combination with knowledge of the culture and particular characteristics of consumers in the respective markets. Alongside this qualitative, ethnographic information, comparability of the results of multi-country studies is also becoming even more important. Cost-saving products and marketing plans that are to be successful in more than one market can only be created with comparable data. This requires international expertise and a global presence on the part of the market research organizations concerned. In this environment, GfK is well positioned with its global presence and international expertise. The product offering is innovative and meets the needs of a broad mix of customers and industries. GfK also has a stable panel business and the entry barriers are high. The company has a sound capital structure and is optimally prepared for the future through its existing financing arrangements. A high degree of flexibility allows GfK to respond appropriately to changing market conditions. The cost-cutting measures implemented at an early stage will further mitigate the effects of the financial and economic crisis.
As at the end of February 2010, the order book covers a total of 42.8% of the annual budget (previous year: 43.3%), and is therefore considerably ahead of budget. GfK recorded growing interest in the Custom Research sector in particular, and the order intake exceeded expectations. The order intake in the Media sector was also pleasing. The Retail and Technology sector has recorded a solid order intake so far. Several large contracts are already entered in the books and others are still under negotiation. The sector also expects to see pleasing organic growth by the end of March. Traditionally however, the first months are not an indicator of business development for the full financial year.
Assuming a significant improvement in economic conditions and ongoing recovery in operating business, GfK expects sales to rise by around 3% in financial year 2010. This increase will be considerably greater than that of the industry as a whole: it is estimated that sales in the market research industry will remain unchanged from the previous year. All three sectors will contribute to the company’s development with positive organic growth in sales. For financial year 2010, GfK expects a margin, that is the ratio of adjusted operating income to sales, of up to 13%.
GfK anticipates that the highlighted items will stand at up to EUR 40 million in 2010 (including BISS). For the current financial year, the GfK Group is expecting capital expenditure of around EUR 50 million.
As long as the economic environment continues to be spared major disruption, the Management Board of the GfK Group believes that with the measures taken, it is well positioned to achieve faster organic growth than the market research sector in the medium term as well, and to maintain the quality of its income as a minimum.
Provisional key dates in the financial calendar
May 12, 2010 Quarterly report as at March 31 *
May 19, 2010 Annual General Meeting, Fürth
August 16, 2010 Interim half-year report as at June 30
November 15, 2010 Interim nine-month report as at September 30*
* Publication is scheduled for before the start of the trading season
The GfK Group
The GfK Group offers the fundamental knowledge that industry, retailers, services companies and the media need to make market decisions. It delivers a comprehensive range of information and consultancy services in the three business sectors Custom Research, Retail and Technology and Media. The No. 4 market research organization worldwide operates in more than 100 countries and employs over 10,000 staff. In 2009, the GfK Group’s sales amounted to EUR 1.16 billion. For further information, visit our website: www.gfk.com. Follow us on Twitter: www.twitter.com/gfk_group.
Responsible under press legislation
GfK SE, Corporate Communications
Bernhard Wolf
Nordwestring 101
90419 Nuremberg
Germany
Tel. +49 911 395-2012
Fax +49 911 395-4075
bernhard.wolf@gfk.com
Disclaimer
This information is not intended for publication or distribution in the United States of America.
This publication does not constitute an invitation to buy securities in the United States of America. GfK SE securities may not be offered or sold in the United States of America without registration or the relevant exemption from the duty of registration pursuant to the Securities Act of 1933 in its valid version. This press release contains forward-looking statements. Forward-looking statements are statements that do not describe events of the past. They also comprise statements regarding our assumptions and expectations. Each statement in this press release that reflects any intentions, assumptions, expectations or forecasts by us (and any underlying assumptions) is a forward-looking statement. These statements are based on forecasts, estimates and predictions currently available to the management of the GfK Group. Forward-looking statements relate therefore only to the date on which such statements are made. We assume no liability to update such statements on the basis of new information or future events.
