GfK Group significantly exceeds expectations for 2005
- Sales at the GfK Group including the NOP World companies rose by over 39% to 935.4 million euros (guidance: >900.0 euros)
- EBIT including income from participations and highlighted items increased by over 41% to 128.6 million euros
- Improved margin of 13.7% (guidance: >12.5%)
- Growth in organic terms of 6.5% outperformed the sector once again
- Dividend set to rise by 10% to 0.33 euros
Nuremberg, February 28, 2006 - Financial year 2005 has been a year of extraordinary success for the GfK Group. Preliminary figures indicate that GfK including the former NOP World companies achieved an increase in sales of 39.2% from 671.7 to 935.4 million euros. In addition, growth at GfK in organic terms of 6.5% clearly outperformed sector growth that experts estimate at 4 to 5%. As a result, the GfK Group has further consolidated its global market position. Earnings before interest and tax (EBIT) including income from participations and highlighted items which facilitate the comparison between preliminary IFRS figures and US GAAP guidance, rose by 41.2% from 91.1 to 128.6 million euros. This figure includes integration costs totaling 15.8 million euros.In financial year 2005, the GfK Group significantly exceeded its guidance for sales and income announced in early 2005. Following the acquisition of NOP World and the extended scope of consolidation as of June 1, 2005, GfK revised its guidance to expected sales of around 900 million euros and an EBIT margin after income from participations and including highlighted items of at least 12.5%. GfK will exceed this guidance by around 4% for sales and around 10% for EBIT after income from participations including highlighted items. The EBIT margin will stand at 13.7 instead of the expected minimum of 12.5%.
Switch in accounting standards from US GAAP to IFRS
As required, the GfK Group will publish its financial statements in accordance with the International Financial Reporting Standards (IFRS) from 2005 onwards. Unlike US GAAP accounting, the accounting standards applied by the GfK Group to date, under IFRS, various items are charged to expenses. These impact on the above EBIT including highlighted items after income from participations of 128.6 million euros as follows:
- amortization of the first-time valuation of intangible assets according to the purchase price allocation (PPA) method. This totals 16.8 million euros.
- expenses for employee stock options of 2.3 million euros
- 5.5 million euros difference from the translation of foreign currencies, reported in part under shareholders' equity and liabilities according to IFRS
EBIT including income from participations according to IFRS, excluding the above highlighted items, amounts to around 104.0 million euros.
Shareholders will benefit from GfK's good performance. The Supervisory Board and the Management Board intend to propose a ten percent increase in dividend from 0.30 euros to 0.33 euros per share to the Annual General Meeting on June 29, 2006. The 3.15 million shares from the capital increase are entitled to a full dividend in 2005. As a result, the total amount will be up 23%, with the total distribution amounting to 11.6 million euros. Since its IPO in 1999, GfK has increased dividend payments each year.
GfK GROUP: GROWTH ON PRIOR YEAR
| In EUR million |
2004 US GAAP |
2005 |
| Sales | 671.7 | 935.41) |
| Adjusted operating income2) | 86.2 | 121.5 |
| Highlighted items (including integration costs) |
0.7 | 45.5 |
| Operating income | 86.9 | 76.0 |
| Income from participations result from associated companies |
4.0 | 28.0 |
| EBIT | 91.1 | 104.0 |
| Highlighted items for guidance |
||
| PPA depreciation/amortization | 16.8 | |
| Personnel expenses for stock option program |
2.3 | |
| Currency | 5.5 | |
| Adjusted EBIT | 128.6 |
2) adjusted by other operating expenses/income (e.g. PPA, currency effects),
integration costs and personnel expenses for stock option program
Growth at the GfK Group
Overall, GfK achieved an increase in sales of 39.2% in the past year, of which 0.3% is attributable to currency effects. At 6.5%, organic growth for GfK was clearly above sector growth of 4 to 5%. Net of multi-year contracts with a fixed sales volume, organic growth rises to 6.9 percentage points.
The high level of growth from acquisitions (32.4 percentage points) is mainly attributable to the purchase of NOP World, which has been consolidated since June 1, 2005. Acquired at a price of 550 million, GfK largely financed the transaction through borrowings. In a second step, the Group raised equity through a ten percent capital increase excluding subscription rights. In this connection, GfK placed 3.15 million shares with institutional investors on June 2, 2005, with proceeds amounting to 90.3 million euros.
Brief description of GfK activities
| Custom Research | Information services for developing, positioning and maintaining products and services, aimed at optimizing the mix of marketing policy activities and managing product and corporate brands and customer loyalty. |
| Retail and Technology | Information services regarding marketing, sales, logistics in retail and industry for companies operating in consumer technology markets. |
| Consumer Tracking | Information services regarding market and marketing matters relating to day-to-day consumer buying decisions and habits, providing information on almost all fast moving consumer goods plus a large number of slow moving consumer goods and services. |
| Media | Information services on media consumer behavior and attitudes. Services include quantitative analyses of viewer, reader and listener reach and qualitative surveys on acceptance, preferences and recall of media content. |
| HealthCare | Information services relating to product development, communication, image and price control of medicines, market positioning and customer satisfaction, measuring the unit number and sales of materials and products used by dentists and laboratories as well as measuring the consumption of veterinary medicines. |
Total sales of 935.4 million euros include GfK Group sales before consolidating NOP World, which contributed 737.4 million euros, and the NOP World companies whose contribution totals 198.0 million euros. The breakdown of adjusted operating income of 121.5 million euros, before integration costs of 15.8 million euros, is 100.4 million euros attributable to the "old" GfK Group and 21.1 million euros to the NOP World companies.
Growth by division
In the past financial year, the GfK Group once again achieved consistently high growth rates in all five business divisions.
GfK GROUP: INCLUDING AND EXCLUDING NOP WORLD (2005 ACCORDING TO IFRS)
| |
2004 |
2005 GfK "old" preliminary |
Change absolute |
Change in % |
NOP 2005 preliminary |
GfK Group 2005 preliminary |
| Sales | 671.7 | 737.4 | +65.7 | +9.8 | 198.0 | 935.4 |
| 585.6 | 637.0 | +51.4 | +8.8 | 187.3 | 829.6 | |
| Adjusted operating income | 86.1 | 100.4 | +14.3 | +16.6 | 21.1 | 121.5 |
| Margin | 12.8 | 13.6 | -- | -- | 10.7 | 13.0 |
GROWTH BY DIVISION1)
| |
2004 2005 |
preliminary Change |
in % |
| Custom Research | 252.1 | 417.5 | +65.6 |
| Retail and Technology | 187.0 | 208.2 | +11.3 |
| Consumer Tracking | 94.4 | 100.6 | +6.5 |
| Media | 62.2 | 95.4 | +53.2 |
| HealthCare | 68.1 | 106.4 | +56.3 |
| Other | 7.9 | 7.3 | -7.0 |
| Total | 671.7 | 935.4 | +39.2 |
In the CUSTOM RESEARCH division, GfK supplies clients with information services to support them in the strategic and operating decision-making process. This includes surveys and tests on product and pricing policy, brand management, communication, distribution and customer loyalty. In 2005, sales in this division were up by 65.6% to 417.5 million euros, of which 58.5% is attributable to acquisitions and 6.4% to organic growth. Currency effects increased sales by 0.7%. The high level of growth by acquisition is largely accounted for by the purchase of NOP World.
A major contract awarded to GfK Automotive of GfK Custom Research France contributed to the increase in sales. This is an early result of the synergies being released between "old" and "new" GfK companies. In addition, the new majority shareholdings in GfK Research Dynamics in Canada, and Adimark in Chile also impacted positively on sales. As part of the acquisition of NOP World, GfK Martin Hamblin in the UK was integrated into GfK NOP in the UK at the end of the third quarter.
GfK's RETAIL AND TECHNOLOGY division provides clients from retail and industry with regular information services that are based on continuous research and analysis of sales of durables in retail. With 11.3%, the division continued to record pleasing growth and generated sales of 208.2 million euros. Organic growth accounted for 7.5 percentage points of the increase in sales while the remaining 3.8% resulted from acquisitions, mainly that of Beyen Marktforschung, Germany, as of January 1, 2005. Strong organic growth in Retail and Technology is attributable to the excellent market positioning of this GfK division worldwide, a growing requirement for information on the part of manufacturers of durables and successful cost management which has facilitated the introduction of the Startrack production system. The expansion into new growth markets, such as Latin America and the Baltic countries, ensures future growth for GfK in this division.
Throughout Europe, the CONSUMER TRACKING division offers information and advisory services on the purchasing behavior of consumers. This division performed well overall. Sales were up significantly, rising 6.5 percentage points to 100.6 million euros, of which 0.4 percentage points were attributable to exchange rate gains and 6.2 percentage points to organic growth. Growth was due, in particular, to the expansion of the ConsumerScan panel in Germany to include a total of 20,000 households. In addition, GfK Panelservices Benelux, Netherlands, performed very well. The success of the division was impacted by the necessary restructuring of the retail panel business in Switzerland, as already reported by GfK.
The MEDIA division provides clients in Europe and the USA with information services on reach, the effect of the traditional mass media, including print, posters, film, radio and television as well as the new online and offline media. Sales in this division rose by 53.2% to 95.4 million euros. Of this, 46.3% was accounted for by acquisitions, 6.7% by organic growth and 0.3% was due to currency effects. The high proportion of growth by acquisition was mainly the result of the NOP World purchase. The good level of organic growth stems in part from the contract for the supply of 4,000 GfK meters for measuring TV ratings in India.
GfK's HEALTHCARE division offers clients information and advisory services on the markets for prescription-only and OTC drugs, biotechnology, diagnostics, clinical equipment, laboratory accessories and disposable medical items as well as dental and veterinary market research surveys. The rise in sales amounting to 56.3% to 106.4 million euros was mainly due to growth by acquisition. Organic growth accounted for 4.7 percentage points and 0.4 percentage points resulted from currency effects. In the third quarter, the HealthCare business of GfK Martin Hamblin, UK, was integrated into GfK NOP in the UK and GfK V2 in the USA.
The OTHER division includes GfK Group Services, GfK Methoden- und Produktentwicklung (GfK method and product development) and GfK Data Services, Germany, into which GfK Business Solutions & Processing was integrated at the end of 2005 once the data collection commissioned by IRI was stopped. These companies are service providers to the GfK Group, its subsidiaries and their cooperation partners. In 2005, the division recorded sales of 7.3 million euros.
Growth by region
In 2005, GERMANY remained the strongest national market in terms of sales for GfK. This is due to the fact that the newly acquired former NOP World companies were only consolidated as of June 1, 2005. Sales in this region increased 7.3% to 253.6 million euros, with 6% of this attributable to organic growth.
SALES GROWTH COMPONENTS BY DIVISION1)
| Growth in % | Total | Organic | Acquisitions | Currency |
| Custom Research | +65.6 | +6.4 | +58.5 | +0.7 |
| Retail and Technology | +11.3 | +7.5 | +3.8 | 0.0 |
| Consumer Tracking | +6.5 | +6.2 | 0.0 | +0.4 |
| Media | +53.2 | +6.7 | +46.3 | +0.3 |
| HealthCare | +56.3 | +4.7 | +51.2 | +0.4 |
| Other | -7.0 | -6.9 | 0.0 | -0.1 |
| Total | +39.2 | +6.5 | +32.4 | +0.3 |
GROWTH BY REGION 1)
| Sales in EUR million |
2004 |
2005 preliminary |
Change in % |
| Germany | 236.3 | 253.6 | +7.3 |
| Western and Southern Europe | 215.7 | 257.5 | +19.4 |
| Northern Europe | 55.6 | 127.6 | +129.6 |
| Central and Eastern Europe | 40.1 | 53.0 | +32.4 |
| Asia and the Pacific | 39.3 | 38.8 | -1.2 |
| America | 84.8 | 204.9 | +141.7 |
| Total | 671.7 | 935.4 | +39.2 |
Sales in WESTERN AND SOUTHERN EUROPE rose by 19.4% to 257.5 million euros, with acquisitions accounting for 10.8% and organic growth for 8.6%.
In NORTHERN EUROPE sales were up 129.6% to 127.6 million euros, exclusively due to acquisitions. Performance at GfK Martin Hamblin in the UK, which was integrated into GfK NOP in the UK at the end of the third quarter as part of the acquisition of NOP World, was not satisfactory and reduced sales in organic terms in the division by 1.6%. Currency effects also reduced sales by 0.6%.
CENTRAL AND EASTERN EUROPE achieved the strongest growth of all regions in organic terms with 23.5%. Acquisition-driven growth of 4.2% and exchange rate gains totaling 4.7% resulted in a 32.4% increase in total sales to 53.0 million euros.
In ASIA AND THE PACIFIC, sales of 38.8 million euros remained approximately at the prior year's level. A portion of the contracts that were previously awarded directly to the Asian subsidiaries have been commissioned by GfK in Germany since 2005 and accordingly are also invoiced by GfK in Germany.
With 141.7%, AMERICA recorded the highest growth rate of all the regions, achieving sales of 204.9 million euros. This increase was almost entirely attributable to acquisitions in the region. These comprised, above all, the former NOP World companies. Since its IPO in 1999 and since launching operations in the US market, GfK has advanced from being the No. 15 market research company in 2004 to No. 6 in 2005 on the strength of company acquisitions in this, the biggest single market research market.
Employees
In 2005, GfK employed 7,502 full-time employees, 35.4% more compared with the prior year (5,539). Following the acquisition of NOP World, GfK's staff complement increased by 1,552. As of the end of the financial year, a total of 1,588 full-time staff were employed by GfK in Germany (2004: 1,502) and 5,914 (2004: 4,037) outside Germany. The number of employees working outside Germany rose by 5.9 percentage points to total 78.8% (2004: 72.9%).
Major events since the year-end
Since January 1, 2006, GfK has held a 51% shareholding in Merc, a company established in 1991 and based in Mexico City. In 2005, Merc generated sales totaling almost 5.9 million euros with 113 employees. Key accounts of the company include Nestlé México, Aerovias de México, Pfizer, Novartis and Cadbury Adams.
With effect from January 1, 2006, GfK also acquired an 80% stake in market researcher KleimanSygnos in Argentina. With a staff complement of 128 full-time employees, the company, which emerged out of Kleiman Research and Sygnos Research and Consultancy in 2002, achieved profits of almost 1.3 million euros in 2005. Major clients of KleimanSygnos include Philip Morris and beverage manufacturers Cepas Argentinas, Pepsi-Cola Argentina & Latin America and Cervecerias Quilmes.
In January, the GfK Group presented the cornerstones of its strategic direction for the coming five years in the form of the 5 Star Initiative, which defines five milestones. GfK will give high priority to achieving these milestones in the next few years.
- The first initiative, "Fact-Based Consultancy", concerns the consistent development of the service offering into high-value, fact-based and continually generated consultancy services for top managers of companies
- The second initiative, "TOP 3", is about GfK's positioning in the international market research market. GfK's vision is to be number 3 in the sector as well as number 3 in each of the countries significant to market research in Europe, North, Central and South America and Asia and the Pacific.
- Thirdly, GfK's "Global Reach" initiative is geared towards expanding its global network further and opening offices in all countries that are significant from an economic and market research point of view.
- With its fourth initiative, "Full Service", GfK intends to maintain its position as a market research company offering a wide range of services.
- The fifth initiative, "Excellent Financials", defines the financial expectations of GfK for the next five years. The company has set itself the ambitious goal of increasing sales as close to the 1.5 billion euro mark as possible and achieving a margin (adjusted operating income in relation to sales) of 13 to 15%. The ratio of net indebtedness to EBITDA should be reduced to nearly 2 as soon as possible.
Outlook
Following the acquisition of NOP World, the structure of contracts that will impact on sales at GfK in the current financial year is different. The proportion of Custom Research business, in particular, has changed. This shift in the portfolio of contracts impacts the comparability of figures with the prior year. The figure indicating the sum of total existing orders, incoming orders and sales invoiced already as of January 31, 2006 stood at 31% of expected sales for the year compared with 36% in the prior year.
GfK anticipates total sales in excess of 1.1 billion euros for financial year 2006. Based on the new scope of consolidation which applies since the beginning of the year, this equates to growth of around 18%. The company expects to once again outperform average sector growth in 2006, which experts are estimating at around 5%.
As in previous years, GfK intends to grow its operating income more strongly than its sales. The target margin, which is adjusted operating income before highlighted items in relation to sales, is set at a minimum of 13.0. This represents a rise of 0.8 percentage points like-for-like on 12.2%. This comparison is based on the assumed sales at NOP World for 2005 as a whole. The company expects the divisions to perform as follows:
SALES GROWTH COMPONENTS BY REGION 1)
| Growth in % | Total | Organic | Acquisitions | Currency |
| Germany | +7.3 | +6.0 | +1.3 | 0.0 |
| Western and Southern Europe | +19.4 | +8.6 | +10.8 | 0.0 |
| Northern Europe | +129.6 | -1.6 | +131.8 | -0.6 |
| Central and Eastern Europe | +32.4 | +23.5 | +4.2 | +4.7 |
| Asia and the Pacific | -1.2 | -1.2 | 0.0 | 0.0 |
| America | +141.7 | +2.7 | +137.7 | +1.2 |
| Total | +39.2 | +6.5 | +32.4 | +0.3 |
Overall, GfK assumes that all business divisions will record sound growth. The target is to achieve a margin in each division including the former NOP World companies that is at least on a par with that for the prior year or exceeds this.
Accounts press conference and full annual accounts
GfK will present the full annual accounts at its accounts press conference in Nuremberg, which starts at 10 a.m. on May 2, 2006, and at a DVFA analysts' conference in Frankfurt/Main, which starts at 3 p.m. on the same day.
GfK GROUP: 2006 GUIDANCE
| In EUR million |
Sales 2005 preliminary |
Sales 2006e [%] |
2005 margin preliminary like -for-like[%]1) |
2006e margin [%] |
| Custom Research | 417.5 | >21.0 | ~8.5 | >8.5 |
| Retail and Technology | 208.0 | >6.0 | ~25.0 | >25.0 |
| Consumer Tracking | 100.6 | >7.0 | ~4.5 | >6.5 |
| Media | 95.4 | >20.0 | ~20.0 | >20.0 |
| Healthcare | 106.4 | >33.0 | ~7.5 | ~12.0 |
| GfK Group2) | 935.4 | ~18.0 | ~12.2 | >13.0 |
2) including "Other"
Provisional key dates in the financial calendar
| May 2, 2006 | Accounts press conference, Nuremberg |
| May 2, 2006 | Analysts' conference, Frankfurt/Main |
| May 15, 2006 | Quarterly report as of March 31, 2006* |
| June 29, 2006 | Annual General Meeting, Fürth, Stadthalle |
| August 14, 2006 | Interim report as of June 30, 2006* |
| November 14, 2006 | Quarterly report as of September 30, 2006* |
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