Annual press conference on financial statements 2014
Nuremberg, March 13, 2015 – In 2014, GfK continued its transformation successfully and has now largely completed it. The company’s strategy of expanding its digital product portfolio and investing in profitable business with strong growth potential is getting traction. In financial year 2014, the Group’s operating performance improved. Sales declined 2.8 percent to €1,453 million (2.0% organically), driven by portfolio adjustments and negative currency effects. Despite the sales reduction, GfK achieved a margin of 12.3 percent (previous year, comparable: 12.1 percent). Taking into account a one-off effect in the previous year, adjusted operating income was at €178.8 million, virtually at the same level as in 2013. Cash flow from operating activity improved by 20 percent, reaching €196.9 million. The Management and the Supervisory Boards propose a dividend of €0.65 per share (previous year: also €0.65). For 2015, GfK is aiming for modest organic growth as well as a further margin improvement.
“Following the transformation over the past three years, GfK is better positioned to succeed in a rapidly changing industry. And we won‘t be standing still. We continued to develop our digital business and have invested heavily in more profitable, innovative solutions. The margin developed positively and we significantly improved our cash flow. Now our focus returns to modest growth,” comments Matthias Hartmann, Chief Executive Officer of GfK SE.
During the transformation, the main focus of the Consumer Experiences sector was to develop its global, innovative product portfolio and to improve income and margin. Despite a decline in organic sales of 5.4 percent, the margin of the sector increased from 6.6 percent to 7.0 percent. This can be attributed to higher-margin global products gradually replacing local, less profitable activities, and to effective cost management.
The highly profitable Consumer Choices sector continued to pursue its growth strategy, increasing sales organically by 3.2 percent. The sector continued to invest in new products and services, thereby accepting a lower margin (22.1%).
The GfK Group’s sales were €1,453 million, down 2.8 percent year-on-year (previous year: €1,495 million). The impact of currency effects was
-0.9 percent, while acquisitions added +0.1 percent. In organic terms, sales fell by 2.0 percent. Negative currency effects weakened over the course of the year.
As in the previous year, Central Eastern Europe/META, Asia and the Pacific as well as Latin America were the regions with the highest growth, reporting organic growth of up to 9.2 percent. However, these regions were strongly impacted by currency headwinds. Only Asia and the Pacific recorded overall growth. In contrast, currency effects had a positive impact on the regions of Northern Europe and North America, where large portions of the Group’s sales were generated. This partly offset the negative development of organic sales.
Adjusted operating income was €178.8 million, slightly below previous year’s value of €190.4 million adjusted for a one-off Swiss pension plan effect of €10.1 million. This positive income level was achieved despite declining sales through continuous improvements in operating performance, which more than offset investments in new products and services as well as the transformation of GfK. Total margin (adjusted operating income in relation to sales) was 12.3 percent. Cash flow from operating activity improved by 20 percent to €196.9 million. Free cash flow after investments more than doubled to €98 million (previous year: €46.6 million). In 2014, investments by the GfK Group amounted to €99 million (previous year: €118 million). In line with the strategy focusing on organic growth, investment in business expansion increased to €63 million (previous year: €52 million). Around €8 million was spent on acquisitions in digital business. They were immediately integrated into GfK.
The GfK Group’s consolidated total income improved to €19.4 million (previous year: €-42.1 million). This is primarily due to:
– A decrease in goodwill impairment in 2014 (2013: €114.6 million; 2014: €59.5 million).
– A year-on-year increase of €6.5 million in expenses related to tax disputes in Turkey.
– Tax improvements in France and the USA. Overall tax expenses were reduced by €18 million in 2014.
– The positive impact of €10.1 million on operating income from the conversion of a pension plan in Switzerland in 2013.
The Management and Supervisory Boards of GfK will propose to the Annual General Assembly on May 28, 2015 that an unchanged dividend of €0.65 per share be paid out for financial year 2014.
Outlook
GfK intends to return to growth in financial year 2015 while increasing productivity. In a rapidly changing market, the product and service portfolio is constantly being improved to further extend the strong market position in retail and consumer data. The focus is on further integration of market research data to enable a holistic measurement of media, brands and consumers.
The capital expenditure investment level will remain on a similar level as in the previous year. Mergers and acquisitions will continue to be carefully evaluated on a case-by-case basis. GfK is mainly interested in technology-driven companies which could immediately offer added value. The focus will continue to be on organic growth in 2015.
In the Consumer Experiences sector, the focus is on stabilizing sales at the level generated in 2014. The transformation towards more profitable activities and digital products will continue while purely local and less profitable contract research projects will be scaled back. In light of this, the sector is not expected to make a growth contribution in 2015. A further decline in sales is also possible. It is anticipated that the margin will continue to rise modestly.
The Consumer Choices sector will continue to systematically pursue growth and margin opportunities. The core Retail Tracking business will be expanded further, and new panels are expected to make a gradual contribution to sales and earnings growth. In Audience Measurement, the set-up of new panels to measure TV audiences will be completed in 2015. The respective Audience Measurement contracts will contribute significantly to sales growth in the second half of the year. The key priority is still on expansion into new regions and countries. The Management Board assumes that this sector will grow faster than in the previous year. Therefore its share of sales, relative to Group sales, will increase further. Even though Audience Measurement sales are likely to account for a larger share of the business, the margin is not expected to change significantly versus previous year.
The Group anticipates a return to modest organic growth in 2015. Adjusted operating income should improve and the margin should rise to somewhere in the range of 12.4 to 12.8 percent.
The Group is aiming to outpace the market in 2016 in terms of organic growth. GfK is still aiming for a margin of between 14 and 15 percent for 2016.
The year started in line with expectations. Sales coverage at the end of January 2015 was already 39.2 percent of predicted annual sales (2014: 42.0 percent). It is therefore well within the range of 33 and 42 percent over the last five years.
About GfK
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