GfK Group achieves dynamic growth in second quarter
- Organic growth in sales up by 11.4% in the second quarter; adjusted operating income up by 13.4% on the same quarter in the prior year
- In the first half of 2008, organic growth in sales amounted to 8.4% (prior year: 4.9%); sales increased overall to EUR 589.7 million
- Adjusted operating income for the first six months rose to EUR 66.8 million (5.2% up on the prior year)
- Performance particularly strong in emerging markets and high-margin Retail and Technology sector
- Order book as of the end of July stands at 80.3% of expected sales for the year and significantly exceeds the excellent level of the prior year of 79.4%
- Positive outlook for financial year 2008: organic sales growth of more than 6.0% (previously more than 5.5%) and a margin of more than 13.0%
- Plans to make a takeover bid for TNS will no longer be pursued
Nuremberg, August 28, 2008 – The GfK Group recorded a successful second quarter in 2008. The Group achieved excellent sales growth in organic terms of 11.4%. Adjusted operating income rose by 13.4% to EUR 43.8 million compared with the second quarter of 2007. With a figure of 13.6%, the margin, which represents the ratio of adjusted operating income to sales, was above the same quarter in the prior year when it stood at 13.2%.
In the first six months of this year, organic sales growth amounted to 8.4%. The GfK Group therefore achieved the highest growth rate in organic terms since its IPO in 1999. All three sectors contributed to growth. Negative currency effects reduced sales growth by 4.5%. Sales reported after currency effects and acquisitions rose by 6.5% to EUR 589.7 million. Adjusted operating income increased to EUR 66.8 million after EUR 63.5 million in the first six months of 2007. At 11.3%, the margin almost matched the prior year’s level of 11.5%.
The performance of the Retail and Technology sector was particularly pleasing, with the sector further expanding its strong margin in the second quarter of 2008. Despite unfavorable exchange rate developments, the Media sector achieved strong growth amounting to a high single-digit figure. Moreover, in the second quarter of 2008, the Custom Research sector, whose performance at the start of the financial year was rather more restrained, exceeded the figures for the same quarter in the prior year. In the second quarter of this year, the sector increased sales by a total of 5.7%. At regional level, GfK recorded very strong growth in organic terms in Central and Eastern Europe, Asia and the Pacific and Latin America.
Overall, the GfK Group’s order books are excellent. At the end of July, 80.3% of expected Group sales for 2008 were already posted or included under existing orders. This represents a further rise on the high level of the prior year of 79.4%.
Economic and financial development in the GfK Group
In the first half of 2008, the GfK Group achieved strong organic sales growth of 8.4%. Acquisitions contributed a total of 2.6% to sales growth, while currency effects arising mainly from the revaluation of the euro against the US dollar reduced sales by 4.5%. Compared with the same period in the prior year, GfK increased SALES by a total of 6.5% to EUR 589.7 million (prior year: EUR 553.7 million).
The impact of exchange rate changes on the consolidated financial statements is limited, since GfK’s value creation is essentially in the local currency, in which the company also invoices sales. Any differences are, therefore, generally translation effects resulting from the fact that consolidated sales are reported in euros.
GfK Group: key figures1)
In EUR million | HY1 | HY1 | Change | HY1 | Change |
Sales | 553.7 | 589.7 | +6.5 | 589.7 | +6.5 |
Gross income from sales | 177.6 | 180.4 | +1.6 | 180.4 | +1.6 |
EBITDA | 77.3 | 73.2 | - 5.3 | 82.9 | +7.3 |
Adjusted operating income | 63.5 | 66.8 | +5.2 | 66.8 | +5.2 |
Margin in per cent2) | 11.5 | 11.3 |
| 11.3 |
|
Operating income | 53.0 | 49.7 | - 6.2 | 59.4 | +12.1 |
EBIT | 54.7 | 51.2 | - 6.5 | 60.9 | +11.3 |
Consolidated total income | 29.6 | 28.1 | - 5.2 | 34.7 | +17.3 |
Basic earnings per share (EUR) | 0.75 | 0.69 | - 8.0 | 0.87 | +16.0 |
1) Rounding differences may occur
2) Adjusted operating income in relation to sales
3) Adjusted for the expenses in connection with the merger of equals planned up to this date between GfK and TNS amounting to EUR 8.9 million and the cost of the transformation of GfK AG into GfK SE incurred to date totaling EUR 0.8 million
ADJUSTED OPERATING INCOME ("income”) was up 5.2% to EUR 66.8 million compared with EUR 63.5 million in the same period of the prior year. In organic terms, income rose by 7.4%, with acquisitions increasing income by 1.5%. Negative currency effects reduced income by 3.7%. Compared with the first quarter of 2008, the margin improved significantly from 8.6% to 11.3% for the first six months of the year.
Like its competitors, the GfK Group uses adjusted operating income as a key performance indicator. GfK is convinced that the explanations on business performance using adjusted operating income will facilitate interpretation of the GfK Group’s business development and enhance the informative value in comparison with other major companies operating in the market research sector.
Adjusted operating income is calculated by excluding expenses and income items, which distort the assessment of the results of operations of the sectors and the Group, from operating income. These earnings indicators are called highlighted items and totaled EUR 17.1 million in the first half of 2008 (prior year: EUR 10.5 million).
On an adjusted basis, that is, excluding costs in connection with reorganization and business combinations, operating income rose by 12.1% to EUR 59.4 million (prior year: EUR 53.0 million). Reported operating income amounted to EUR 49.7 million and remained 6.2% below the figure for the first half of 2007.
INCOME FROM PARTICIPATIONS amounted to EUR 1.4 million (prior year: EUR 1.7 million).
Net of the costs in connection with reorganization and business combinations, EBIT was up 11.3% on the prior year to EUR 60.9 million. Reported EBIT of EUR 51.2 million was 6.4% below the corresponding figure for the prior year.
Compared with the prior year, EBITDA, adjusted for costs in connection with reorganization and business combinations, climbed 7.3% to EUR 82.9 million. Reported EBITDA decreased by 5.3% in the first six months of this year to EUR 73.2 million (prior year: EUR 77.3 million).
The NET FINANCIAL RESULT, which represents the balance of OTHER FINANCIAL INCOME and EXPENSES, amounted to EUR -10.3 million and was up by 12.7% on the prior year’s figure of EUR -11.8 million.
The TAX RATIO of 31.3% was slightly higher compared with the prior year’s level (30.9%).
Net of costs in connection with reorganization and business combinations, CONSOLIDATED TOTAL INCOME amounted to EUR 34.7 million in the first six months of the current year, which represents a marked increase of 17.3% on the result for the prior year. Unadjusted, consolidated total income stood at EUR 28.1 million compared with EUR 29.6 million in the same period of the prior year.
Adjusted for costs in connection with reorganization and business combinations, undiluted and diluted EARNINGS PER SHARE amounted to EUR 0.87 (prior year: EUR 0.75). At the end of the first half of 2008, the total number of GfK Group shares in circulation increased by 34,651 to 35,897,682 shares. The additional shares resulted from exercised stock options under the stock option program for GfK AG executives. Undiluted and diluted earnings per share before adjustments amounted to EUR 0.69.
Trends in the sectors
All GfK sectors achieved organic growth in sales and contributed to the Group’s dynamic growth in the first half of 2008. The Retail and Technology sector, in particular, achieved excellent growth in the reporting period.
CUSTOM RESEARCH: The portfolio of the Custom Research sector comprises syndicated data, collected for example by the household and doctor panels, and custom research studies that are exclusively tailored to specific questions.
Compared with the first quarter of 2008, the Custom Research sector doubled its organic sales growth from 2.6% to 5.2% in the first six months of this year. Overall, the sector achieved growth in sales for the first half of 2008 of 2.9% to EUR 380.5 million, with acquisitions boosting growth by an additional 3.0%. Negative currency effects reduced sales significantly by 5.3%. Custom Research achieved income totaling EUR 21.4 million (prior year: EUR 24.1 million). The sector margin amounted to 5.6%.The downturn in income is primarily attributable to time delays in the receipt of income and does not represent lost income. One cause of this development is the fact that several business segments within the Custom Research sector are increasingly focusing their activities on major global projects as part of their Key Account Management and some of these projects involve longer negotiation and implementation periods. While most business segments performed satisfactorily, developments in Healthcare business in particular varied at regional level. In Germany and Western Europe/Middle East/Africa, business was very pleasing. In Central and Eastern Europe, new Healthcare markets have been developed and high growth rates were achieved. However, the trend towards shrinking market research budgets within the pharmaceutical industry resulted in restrained sales and income, above all at the US business units. The US pharmaceutical industry is battling with dramatic sales losses resulting from generic drugs, the slow approval processes by the U.S. Food and Drug Administration (F.D.A.) for new, patented products and numerous re-assessments, based on both political and regulatory aspects. The resultant cost pressure on the pharmaceutical industry has also produced cuts in market research budgets. Comprehensive restructuring measures within the relevant HealthCare business units are aimed at countering these developments and achieving considerable cost savings.
Internationally, demand for custom research services persists in the growth regions of Latin America, Central and Eastern Europe and Asia and the Pacific.
Since the switch in the collection method to in-home scanning, for example in Austria, the Consumer Tracking segment has gained a number of new clients and product groups. In view of this, investment is planned in the set-up of additional in-home scanning panels in Central and Eastern Europe over the remaining months of the financial year.
RETAIL AND TECHNOLOGY: The Retail and Technology sector sources data from retail. Clients are provided with information and consultancy services, which are based on syndicated surveys and analysis of retail sales of consumer goods and services in more than 70 countries. Services include the regular publication of surveys of the market segments office communications, photographic technology and optics, domestic appliances, information technology, telecommunications, sports equipment, tourism, consumer electronics and entertainment media.
In the period under review, the Retail and Technology sector achieved considerable further expansion of its business. Sales rose by 16.8% to EUR 142.8 million in the first half of 2008. Organic sales growth amounted to an outstanding 15.7%. The sector has therefore achieved the highest growth rate in organic terms of all sectors. Acquisitions contributed to an increase in sales of 2.9%. Currency effects of 1.8% reduced sales. The sharp rise in sales is attributable to the systematic expansion of the range of services and the increased frequency with which reports are issued. Business activity of the Retail and Technology sector was particularly successful in the emerging markets. In Latin America, the sector expanded its network by acquiring Shopping Brasil. Income rose overproportionally by 24.5% to EUR 35.1 million. In the first half of 2008, the Retail and Technology sector once again achieved the highest margin of all sectors. Compared with the prior year’s period, a further significant margin increase was recorded from 23.1% to 24.6%.
MEDIA: The Media sector provides information services on reach and the intensity and nature of media usage and acceptance in more than 20 European countries and the USA. The offering is directed at clients from media companies, agencies and the branded goods industry. It comprises syndicated surveys as well as specific, one-off studies and analyses. The Media sector draws its information from the various media, including television, radio, print, outdoor advertising and the Internet.
The Media sector achieved excellent organic sales growth of 13.4%. In Belgium, the first half of 2008 saw the renewal of the TV ratings contract by a further three years and the contract for radio audience research by one year. In addition, the BBC Cross Media Agreement in the UK was extended by a further year. In the Ukraine, GfK was awarded a contract for several years in the field of media consumption measurement. The sector successfully established several new products in the North American market. Overall, the sector recorded an increase in sales of 7.8% (EUR 64.3 million). Currency effects reduced sales by 5.6%. Despite negative currency effects of 7.8%, the sector achieved an increase in income of 3.7% to EUR 12.7 million. The margin amounted to 19.8%.
OTHER: The sectors are supplemented by the Other division, which comprises GfK’s central services for its subsidiaries and participations, as well as other non market research-related services. The division mainly includes parts of IHA-GfK, GfK Data Services, GfK Method and Product Development as well as the departments of GfK Group Services.
In the first six months of 2008, sales in the Other division totaled EUR 2.1 million (prior year: EUR 2.2 million). In particular higher personnel, IT and consultancy costs resulted in short cover of EUR 2.5 million (prior year: EUR -1.1 million).
Regional trends
The GfK Group’s activities are based in the following regions: Germany, Western Europe/Middle East/Africa, Central and Eastern Europe, North America, Latin America, and Asia and the Pacific.
In the first half of 2008, the GfK Group performed very well once again in the growth regions of Central and Eastern Europe, Asia and the Pacific and Latin America, and expanded its market position further. In Germany, GfK companies also achieved an excellent growth rate in organic terms.
GERMANY, where GfK is headquartered, is the Group’s second largest region in terms of sales. Here, the company generated sales of EUR 156.5 million in the first six months of the year. Compared with the same period in the prior year, GfK increased organic sales growth from 5.3% to the excellent level of 15.4%. Also the outstanding business performance of the Retail and Technology sector contributed to this pleasing sales growth. Many international contracts handled by the sector are coordinated and processed from Germany.
With sales totaling EUR 239.0 million, the region WESTERN EUROPE/
MIDDLE EAST/AFRICA made the highest sales contribution. In the first half of 2008, sales rose by a total of 3.1%. In organic terms, sales were up by 5.2%, with acquisitions boosting growth by 1.8%. Currency effects impacted negatively on sales with 3.9%.
In the first six months of 2008, the GfK companies in the region CENTRAL AND EASTERN EUROPE contributed EUR 42.5 million to consolidated total sales (prior year: EUR 32.8 million). Overall, dynamic sales growth resulted in a 29.4% rise. GfK achieved the highest organic growth rate of all its regions in Central and Eastern Europe with 23.6%. Acquisitions enhanced growth by an additional 4.5% and positive currency effects added 1.3%.
The company's NORTH AMERICA region generated sales of EUR 102.7 million in the first half of the year (prior year: EUR 119.1 million). The accelerated decline of the US dollar against the strong euro produced negative currency effects of 13.0% in the first six months of 2008. Marked organic growth in the second quarter of 2008 reduced the decline in sales of the first quarter from 2.3% to only 0.7% by the end of the half-year period. This improvement was largely attributable to the Media sector, which achieved a significant increase in sales in the second quarter of 2008. The HealthCare business units generated a restrained sales trend. Comprehensive restructuring measures within the relevant business units are aimed at countering this development and achieving major cost savings.
In LATIN AMERICA, GfK achieved sales of EUR 14.7 million. This corresponds to an increase of 29.4% on the first half of 2007. Organic sales growth amounted to a pleasing 23.1%. Acquisitions increased sales by 6.4%, while currency effects reduced sales slightly by 0.1%.
Sales in ASIA AND THE PACIFIC rose by a total of 48.2% to EUR 34.2 million. Organic sales growth accounted for 17.0 percentage points. Acquisitions boosted sales by 34.9%. GfK expanded its market position in this region on the strength of the acquisition of the Australian Blue Moon Group. Currency effects reduced sales growth by 3.7%.
GfK and TNS status
On July 9, 2008 the Management Board of GfK confirmed that it had reached an agreement with the British market survey company Taylor Nelson Sofres plc (TNS) to rescind the agreement concerning the intended merger of equals. At the same time, the Management Board announced that GfK was actively pursuing a proposal which would involve an alternative all-cash offer being made for TNS with the involvement of an identified potential source of equity and equity related financing.
Following detailed negotiations with potential partners, the Management Board of GfK has concluded that the terms of the financing available did not enable a sufficiently compelling alternative cash offer to be made for TNS that was also economically in the best interests of the GfK shareholders. GfK will therefore no longer pursue the original intention to submit a bid for TNS, but does not rule out the possibility of an offer for TNS at a later date if there is a material change of circumstances in TNS.
GfK has always relied on its position of strength and given the strong Q2 results, the company is able to pursue its growth strategy on a standalone basis and thereby realize attractive acquisitions opportunities in the future.
Outlook
For 2008 as a whole, the GfK Group remains confident of a positive performance. The Group will continue to expand its position as a leading market research company in future. Attractive potential acquisitions that would facilitate the expansion of the existing range of products and existing market positions are checked continually and seized where applicable. The investment focus will be in particular on the growth markets of Central and Eastern Europe, Latin America and Asia and the Pacific. In addition, the GfK Group continuously examines the challenges facing market research markets and develops new product portfolio-related business approaches. GfK’s corporate portfolio is broadly diversified. Sectors that are generally subject to constant market trends are complemented by sectors that face stronger cyclical developments and therefore offer additional and greater opportunities.
The core competence of fact-based consultancy and services has ensured flexible yet balanced positioning for GfK in a changing competitive environment. Double-digit growth rates in the new markets of Central and Eastern Europe, Latin America and Asia and the Pacific strengthen the global presence and expertise of GfK. A service and product portfolio, which is tailored to local requirements, benefits from its broad methodological approach and ongoing research and development of instruments. Organic growth combined with targeted acquisitions forms part of the strategic 5 Star Initiative that GfK will continue to pursue in future.
As of the end of July 2008, order book performance at the GfK Group was considerably better than in the prior year. The order books, which reflect the total of orders invoiced and orders secured that relate to 2008, already covered 80.3% of expected annual sales (2007: 79.4%).
On the basis of this pleasing situation and the good half-year figures, GfK is adjusting its published targets for the three sectors and the Group for the current financial year as follows:
Guidance 2008
Sales growth | Margin in % | |
Custom Research | > 4.5 | ~ 8.0 |
Retail and Technology | > 10.0 | ~ 26.0 |
Media | > 8.0 | > 19.0 |
GfK Group2) | > 6.0 | > 13.0 |
1) Excluding currency effects
2) Including Other
The GfK Group is revising its forecast for organic sales growth in financial year 2008 upwards to more than 6.0% (previously, more than 5.5%). Accordingly, GfK expects to outperform the market once again. The GfK Group margin forecast is unchanged at 13.0%. This does not take into account the impact of currency effects.
Provisional key dates in the financial calendar
November 14, 2008 Quarterly report as of September 301)
February 27, 2009 Preliminary Result 20081)
March 31, 2009 Accounts Press Conference and Analysts Conference
May 15, 2009 Quarterly Report as of March 311)
May 20, 2009 Annual Shareholder Meeting, Fuerth
August 14, 2009 Interim Report as of June 301)
November 13, 2009 Quarterly Report as of September 301)
1) Publication is scheduled for before the start of the trading session
The GfK Group
The GfK Group is the No. 4 market research organization worldwide. Its activities cover the three business sectors of Custom Research, Retail and Technology and Media. The GfK Group achieved sales of 1,162.1 million euros in financial year 2007. The Group has 115 companies covering over 100 countries. Of a total of 9,457 employees (as of June 30, 2008), 81.6% are based outside Germany. For further information, visit our website: www.gfk.com
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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 AG 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 future statements. Future 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 statement on the future. These statements are based on forecasts, estimates and predictions currently available to the management of the GfK Group. Future 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.
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