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Notes to the consolidated financial statements


1. General Information 

GfK SE is a listed Societas Europaea company with its registered office at Nordwestring 101, Nuremberg, Germany. Recorded under HR B 25014 in the commercial register of Nuremberg district court, GfK SE was established from GfK Aktiengesellschaft on February 2, 2009, as a result of a change in the firm’s legal form. GfK SE and its subsidiaries (GfK Group) are among the world’s leading market research organizations. The GfK Group provides information services to its clients in the consumer goods, retail and services industries as well as media, which they use in marketing related decision-making. 

The consolidated financial statements of GfK SE for the fiscal year ending on December 31, 2016 include the company itself (GfK SE) and all its consolidated subsidiaries. The statements were prepared in compliance with the International Financial Reporting Standards (IFRS) applicable in the European Union (EU). 

All IFRS that are mandatory for fiscal year 2016 and the announcements of the International Financial Reporting Interpretations Committee (IFRIC) adopted by the EU were applied. 

Additionally, the accounting principles set forth in Section 315a (1) of the German Commercial Code (HGB) were considered when preparing the consolidated financial statements. 

The consolidated financial statements were prepared in euro and rounded up or down to the nearest thousand euros (€ thousand). All figures are specified in thousand euros (€ thousand), unless otherwise indicated.

The annual financial statements of the parent company, GfK SE, were prepared in line with the German Commercial Code (HGB) and are published in the online Federal Gazette (Bundesanzeiger) under HR B 25014.

Section 37 “Changes to IFRS standards and interpretations” of these Notes describes standards, interpretations and amendments to the IFRS that have already been adopted by the EU and that have been applied for the first time or not yet applied.


2. Consolidation Principles

The annual financial statements of GfK SE, prepared for consolidation purposes, and all material subsidiaries whose financial and operating policies are controlled directly or indirectly are included in GfK SE’s consolidated financial statements. The financial statements of all companies included in the consolidated financial statements were prepared according to uniform accounting principles. 

Companies in which the GfK Group holds a stake of at least 20 percent but no more than 50 percent and in which significant influence can be exercised are generally accounted for at equity as associates. All other companies in the GfK Group are reported at acquisition cost.

A list of GfK SE shareholdings is provided in Section 41 of these Notes.

Capital consolidation is carried out in accordance with IFRS 3, Business Combinations, on the basis of purchase accounting. Acquisition costs for the shareholdings are netted with the parent company’s pro rata share of the subsidiary’s revalued equity as at the acquisition date. Intangible assets acquired in business combinations and identified as part of purchase price allocation are entered on the balance sheet at fair value.

Any difference arising on the assets side after netting and purchase price allocation is reported under non-current assets as goodwill. 

As part of purchase price allocation following an acquisition, identifiable assets, liabilities and contingent liabilities are stated at fair value at the time of acquisition. The calculation of fair values therefore involves estimates. Where intangible assets have been identified as part of purchase price allocation, either a calculation by an independent external expert is used or the fair values are determined internally, depending on the type of assets, the degree of complexity in calculating the fair value and the transaction volume. If the calculation is carried out in-house, it is based on an appropriate valuation method. The relevant valuations are closely linked to assumptions and estimates made by the Management Board in relation to the future development of the assets identified and regarding the discount rate to be applied.

Any non-controlling shares are reported as minority interests. 

In terms of gradual acquisitions, goodwill is determined at the time control was gained and constitutes the difference between the recalculated carrying value of the investments plus acquisition costs for buying the new shares minus the pro rata net assets attributable to GfK. Changes in the share quota without change of control are recorded solely as equity transactions.

Incidental acquisition costs in connection with business combinations are not capitalized but recognized as expenses. 

All transactions and balances between entities of the GfK Group, which are included in the consolidated financial statements, are eliminated when preparing the consolidated financial statements. Differences arising from debt consolidation are reflected in the income statement. Deferred tax on debt consolidation is recorded at a rate of 30 percent, which is the expected Group tax rate excluding exceptional effects. Intercompany results and intracompany asset movements are eliminated with impact on the income statement if they are significant.

Associates are generally reported at equity (one-line consolidation). They are stated for the first time on the acquisition date. First-time valuation is in line with full consolidation. Any difference on the assets side arising from offsetting the carrying amount of the stake against the pro rata equity capital at initial valuation is included in the equity carrying value.

Profits or losses on mergers arising from the merger of two consolidated companies in the GfK Group are eliminated. Such mergers therefore have no impact on the consolidated income statement of the GfK Group. Company mergers involving external minority shareholders do not give rise to any change in the total minority interests or consolidated total income.

Shares in the equity of subsidiaries attributable to external minority interests are shown separately under equity. Shares in the subsidiaries’ results attributable to external minority interests are listed as a separate profit or loss item in the consolidated income statement.


3. Accounting Policies 

3.1 Currency Translation     

Transactions in foreign currencies are translated into the functional currency of the reporting company at the exchange rate on the date on which they were carried out. As at the balance sheet date, monetary items are translated at the exchange rate on that date and non-monetary items are valued at the historical rate on the transaction date. Differences resulting from these conversions are, in principle, reported with impact on the income statement.

The balance sheets of foreign subsidiaries not prepared in euro as well as hidden reserves disclosed on purchase price allocation and goodwill from mergers and acquisitions are converted into euros in accordance with the concept of functional currency, based on the mean exchange rate on the reporting date. The annual average euro exchange rate, calculated as the mean of all month-end exchange rates, is applied to the income statements of these subsidiaries.

Differences resulting from the translation of asset and liability items at the exchange rate on the current reporting date versus translation on the prior reporting date are stated in other comprehensive income (OCI). Exchange rate differences due to capital consolidation and differences arising from translation of the annual results in the balance sheet (reporting date rate) and the income statement (mean rate) are reported in other reserves.

The exchange rates of key currencies for the GfK Group against the euro are indicated in the table below:

Main currencies Mean euro rate on the reporting date Average euro rate during the reporting year
Country Currency unit Dec. 31, 2015 Dec. 31, 2016 2015 2016
USA 1 USD 0.92 0.95 0.91 0.91
UK 1 GBP 1.36 1.17 1.38 1.22
Switzerland 1 CHF 0.92 0.93 0.94 0.92
Singapore 1 SGD 0.65 0.66 0.66 0.66
China 1 CNY 0.14 0.14 0.14 0.14
Japan 100 JPY 0.76 0.81 0.75 0.83

Currency gains and losses, which result from similar transactions, are netted at the level of each subsidiary.

3.2 Consolidated Income Statement

The consolidated income statement is prepared in accordance with the cost of sales accounting method. Expenses are shown by function.

3.3 Sales 

The method of recognizing sales is largely determined according to IAS 18, Revenue, and depends on the nature of the underlying transaction:

Panel business involves surveying individuals, households and companies and is characterized by the fact that the same circumstances are analyzed at the same regular intervals on the basis of the same sample and always deploying the same methods. For business involving panels, the GfK Group recognizes sales pro rata temporis according to the progress of the project. The sales for a given project are therefore distributed evenly over its duration. Each month during the term of a contract, the same amount of sales is recognized. 

Ad hoc business is systematic empirical research used as the basis of marketing decisions in all areas of the marketing mix. This includes tests and surveys on product and pricing policy, brand positioning and brand management as well as traditional and modern forms of communication with consumers and users. It is employed with the goal of optimizing distribution and enhancing customer loyalty and retention. Ad hoc research business is valued on the basis of the percentage of completion method. The progress of a project is determined as the ratio of actually accumulated costs to the overall anticipated costs of the project. The estimate of the total costs is checked on an ongoing basis over the life of the project. Changes to the estimated total costs are included in the calculation of recognizable sales at the time when they can be anticipated. The costs to be included in this calculation comprise all direct personnel expenses and other cost of sales as well as pro rata indirect costs.

Syndicated business analyzes markets and market players without this being specifically commissioned by a client to whose requirements the survey would be tailored. The completed study is marketed without client-specific adjustments. Syndicated surveys may be conducted once or on a recurring basis without fulfilling the distinct and highly specific features of a panel. Various market participants may be questioned in repeated surveys or the studies may be published at different intervals. In terms of determining sales, syndicated business is treated like panel business if it is comparable to panel business in nature. This is because it involves repeated surveys where the cost behavior pattern is relatively evenly distributed over the term.

For other syndicated business, the method of sales recognition depends on the empirical estimate of the respective survey’s profitability. 

If a profit from the survey is probable, it is valued the same as an ad hoc research contract. 

If it is not yet sufficiently certain that enough purchasers will be found for a study, sales are recognized based on the accumulated costs as follows: If the value of the actual incoming orders is below that of the costs accumulated, recognizable sales are limited to the value of incoming orders. As soon as there is no doubt that the value of orders exceeds the costs, sales are recognized according to the method used for ad hoc research contracts.

In all other business transactions, sales are only recognized after completed performance and billing.

For sales recognition based on the percentage of completion method, the estimation of the completion level is decisive. Estimates are also necessary in relation to the extent of payables required for the fulfillment of contractual obligations. The fundamental estimates may relate to total contractual costs, costs incurred up to completion, total sales from the contract or contractual risks. Management reviews all estimates associated with the relevant contracts on an ongoing basis and adjusts parameters where necessary. Changes to significant parameters can lead to an increase or reduction in sales for the respective reporting period.

Provisions are set up for expected losses on orders in progress when a sufficiently reliable estimate of the obligation can be made.

3.4 Cost of Sales, Selling and General Administrative Expenses     

In addition to personnel expenses, expenses for services rendered and scheduled amortization of intangible assets and depreciation of tangible assets, the items “Cost of sales" and "Selling and general administrative expenses” comprise all other costs directly linked to the GfK Group’s operations.

3.5 Research and Development Costs     

Research and development costs are generally recorded as expenses at the time they are incurred and shown under cost of sales.

Development costs incurred within the GfK Group, particularly for setting up new panels, are reported under other intangible assets if the capitalization criteria are met.

Internally generated intangible assets are only capitalized if they resulted from the development phase and not the research phase and if further precisely defined preconditions are cumulatively fulfilled. These include the technical viability of project completion, planned completion and use, as well as the usefulness to the company or salability of the intangible asset. Future economic benefits and the availability of the necessary technical, financial and other resources to complete the project must be documented. A reliable calculation of the costs associated with the intangible asset during its development phase is also a precondition for the capitalization of internally generated intangible assets.

3.6 Other Operating Income and Expenses     

Other operating income and expenses comprise income and expenses related to operations, for which the allocation to sales or functional costs would not be appropriate. They mainly include exchange rate gains and losses from non-financial transactions, profit and loss from the disposal of fixed assets, impairment and reversal of impairment not attributable to functional costs, income and expenses in connection with reorganization and improvement projects, income and expenses in connection with share and asset deals, and expenses for legal disputes.

3.7 Operating Income     

Operating income in the GfK Group consists of gross income from sales less selling and general administrative expenses and net other income, constituting other operating income and other operating expenses.

3.8 Adjusted Operating Income     

Adjusted operating income is the indicator used internally to manage the GfK Group’s business. It is derived from operating income by excluding the following income and expense items from operating income: 

› Goodwill impairment 

› Write-ups and write-downs of additional assets identified on acquisitions 

› Income and expenses in connection with share and asset deals 

› Income and expenses in connection with reorganization and improvement projects 

› Personnel expenses for share-based incentive payments 

› Currency conversion differences  

› Expenses from litigation, compliance cases and terminated projects

› Remaining highlighted items

3.9 Income From Associates     

Income from associates encompasses income and expenses resulting from the valuation at equity of pro rata shares in associates.

3.10 Other Income from Participations     

Other income from participations essentially contains dividends from non-consolidated affiliated companies and other participations of the GfK Group, profit and loss from the divestiture of such companies, and income and expenses from profit transfer agreements with these companies.

3.11 EBIT

The performance indicator EBIT (earnings before interest and taxes) has been included as a subtotal in the consolidated income statement. EBIT is determined by adding the income from associates and other income from participations to operating income. 

3.12 Other Financial Income and Expenses     

Other financial income and expenses consist of interest income and interest expenses, income and expenses resulting from the valuation of derivative financial instruments used to hedge against interest rate risks, transaction costs for bank loans, expenses arising from the write-off of loans, currency gains and losses from financial transactions such as loans and financial liabilities in foreign currency, and other financial income. Interest expenses also include additional interest on previously discounted debt. Such additional interest relates to items such as future purchase price components from acquisitions, which are stated on the liabilities side at fair value. 

Interest is recorded as income or expense at the time it is incurred. Interest is deferred on the basis of the effective interest method. 

3.13 Income from Ongoing Business Activity     

The amount of income from ongoing business activity is stated as a subtotal in the consolidated income statement. The income from ongoing business activity corresponds to consolidated total income before consideration of tax on income. 

3.14 Tax on Income     

Tax on income from ongoing business activity comprises the current and deferred tax expense. 

GfK Group companies have operations in many different countries. The GfK Group is therefore subject to the different tax legislation of various tax authorities. The tax items included in the consolidated financial statements are calculated by considering the relevant tax legislation and the respective tax administration statements. In view of their complexity, certain matters may be interpreted differently by the taxpayer and the local tax authorities.

Deferred taxes are calculated based on the balance sheet liability method, whereby deferred tax assets and liabilities are entered in the balance sheet for temporary differences between the carrying amounts stated in the consolidated financial statements and the tax basis of assets and liabilities. Any effects on deferred taxes from changes in tax law are taken into account in the income statement from the date on which the tax law is passed.

Deferred tax assets are only entered on the balance sheet if it is probable that they can be realized at a future date. This is generally the case when the relevant company is sufficiently likely to achieve enough taxable income to utilize the tax benefit. To evaluate this, the planned results from operational business, effects on results from the reversal of taxable temporary differences and existing tax strategies are taken into account.

The intrinsic value of deferred tax assets is estimated by the Management Board on every reporting date. Estimating planned taxable income and tax benefits achievable with possible tax strategies is naturally subject to some uncertainty. Furthermore, limitations regarding the extent and time frame to realize future tax benefits can arise from changes in tax legislation. Estimates are adjusted in the period in which there is sufficient evidence that an adjustment is required. 

Value adjustments for deferred tax assets are recorded when there are indications that deferred tax assets may only be realized partially or not at all. Applying its discretionary powers, the Management Board assumes a maximum period of time for the realization of deferred tax assets of five years for subsidiaries which are not suffering a sustained loss; otherwise the time period is expected to be shorter.

Tax on items recognized in other comprehensive income (OCI) is not included in the consolidated income statement. No deferred taxes are amortized in relation to currency differences from intra-Group loans in foreign currency reported under OCI, which represent a net investment in the business operations of subsidiaries, because the temporary differences are not intended to be realized in the near future.

3.15 Impairment     

If an asset is impaired and therefore devalued, the impairment expense is reported in the income statement.

The value of assets with an indefinite life and intangible assets under development is checked once a year by means of an impairment test. An impairment test is also carried out if triggering events occur, which may significantly affect the value of the assets concerned.

An impairment on intangible assets is applied if the recoverable amount is below the amortized cost of acquisition or production. The recoverable amount is defined as the higher of the two amounts of fair value less costs of disposal or value in use of an asset whose expected future cash flow at the GfK Group is based on a minimum three-year period, planned in detail and discounted on the basis of a discount rate to be determined individually at market conditions. The growth rate of the cash flow beyond the period of detailed planning is usually taken into account by reducing the discount rate. This method is used to determine the fair value of level three.

Expenses arising from a decline in the value of goodwill and brands are reported in the consolidated income statement under other operating expenses, while the impairment of surveys, panels, customer relations, long-term contracts and software is shown under functional costs. Any impairment of goodwill that has been recognized will not be reversed.

When reviewing other intangible assets or tangible fixed assets for impairment, the process for ascertaining the recoverable amount in respect of these assets is subject to estimates and assumptions by the Management Board which involve uncertainty. Estimates and assumptions may have a significant impact on the relevant figures and ultimately on the extent of a possible impairment. In view of this, an additional impairment or write-ups may result in future from a change in assumptions or circumstances.

More detailed explanations of the impairment applied to financial assets are provided in this Section under “Financial instruments.”

3.16 Earnings per Share     

To determine the earnings per share (EPS) reported in the consolidated income statement, the proportion of consolidated total income attributable to equity holders of the parent is divided by the weighted average number of shares in the relevant fiscal year.

The average number of shares does not need to be adjusted by the options exercised and expired during the reporting year to calculate diluted earnings per share, since there are no longer any GfK stock options that can be exercised. Consequently, diluted earnings per share correspond to earnings per share.

3.17 Long-term Incentive Plans for Employees and Executives of the GfK Group     

A new long-term incentive plan has been in place for GfK SE -Management Board members since fiscal year 2010, and for selected executives of the GfK Group since fiscal year 2012. Any entitlement under the prior model was paid out for the last time in 2015. Participants in the new plan were granted an individual target bonus amount, half of which was converted into virtual shares and half into a performance-based long-term cash bonus. This was valid until 2014. Starting with the 2015 tranche of the plan, the entire individual target bonus amount for participants is converted into virtual shares.

Conversion into virtual shares of the target amount is based on the GfK share price on the 20 trading days prior to the start of the performance period. If a dividend is paid to shareholders, the number of virtual shares increases correspondingly in value. 

Management Board members may exercise their virtual shares upon expiry of a four-year blocking period during certain trading windows within a two-year exercise period. Half of the virtual shares from the 2016 tranche may be exercised upon expiry of a four-year blocking period and the other half upon expiry of a six-year blocking period during certain trading windows within a two-year exercise period in each case. If the virtual shares are not exercised by the end of this period, they are paid out on the final day of the last exercise window.

The two-year exercise period does not apply to executives. For these participants, the amount paid out is calculated upon expiry of a four-year blocking period based on the GfK share price of the last 20 trading days prior to expiry of the performance period.

The following applies to the performance-based long-term cash bonus: After expiry of a four-year performance period, the beneficiary is entitled to payment of a bonus. The amount is determined by the extent to which the specified performance target (average return on capital employed of GfK, or GfK ROCE, for the four-year period) was achieved by December 31 of the third year following the year in which the bonus was granted. Payment for the corresponding term is calculated on the basis of the audited annual financial statements.

Any bonus granted expires without compensation if employment is terminated before expiry of the performance period due to dismissal or resignation.

3.18 Intangible Assets     

Goodwill

Goodwill from the capital consolidation of subsidiaries and goodwill that was transferred from subsidiaries’ financial statements to the consolidated financial statements is reported by the GfK Group under intangible assets. 

In business combinations, goodwill represents the remaining difference in assets after offsetting the acquisition costs of the shareholding against the proportion of acquired revalued equity.

Goodwill from the acquisition of companies which do not report in euros is stated in the reporting currency of the subsidiary acquired. The exchange rate on the date of first-time consolidation is used to calculate the goodwill at initial recognition. Subsequent measurements are based on the mean rate as at the reporting date.

The GfK Group checks the value of its cash generating units, including goodwill, as part of an impairment test once a year or when triggering events or changed circumstances arise. For this purpose, goodwill is allocated to cash generating units which correspond to a structure comprising the two sectors, each with six regions, supplemented by the Other category.

The intrinsic value of goodwill is indicated when the recoverable amount is not less than the carrying amount of the cash generating unit.

The recoverable amount corresponds to the fair value less costs of disposal or the value in use if higher. Since the value in use usually generates a lower cash flow based on GfK’s estimate, GfK generally only calculates the fair value less costs of disposal. It is established as part of the impairment test, using a discounted cash flow method. The expected future cash flow from the relevant five-year budget is used for the calculation. The relevant forecasts take into account past experiences and are based on the best possible Management Board estimate of future developments. Growth in the cash flow beyond the five-year period (perpetuity) is taken into account by reducing the discount rate. To derive the sustained growth effects, current industry-related conditions as well as the cost-earnings ratio and GfK’s performance were taken into account. Against this backdrop, a growth deduction of 1.3 percentage points was applied (2015: 1.3 percentage points).

Similar to the discount rate, this reduced growth rate is derived from externally available capital market data. This method is used to determine the fair value of level three.

The discount rate is determined by carrying out a weighted average cost of capital calculation, taking into account the standard industry capital structure and standard industry financing costs. The discount rate takes into account the expectations of investors and lenders and the relevant country risk. Depending on the cash generating unit, the resulting discount rate ranged from 6.5 percent to 12.4 percent as at December 31, 2016 (December 31, 2015: 6.4 percent to 12.1 percent). The discount rate before tax as at December 31, 2016 ranged from 8.4 percent to 17.4 percent (December 31, 2015: 8.3 percent to 16.8 percent). 

Estimates are involved in determining the recoverable amount of cash generating units to which goodwill has been allocated. Primary assumptions on the basis of which the calculation of recoverable amounts is made include estimated growth rates, weighted average capital cost rates and tax rates. Estimates are required, in particular, to forecast and for the discounting of future cash flows and thus the expected economic development. Capital market volatility, interest rates and currency fluctuations also influence the valuation. Estimates made and the underlying methods may have a significant impact on the relevant figures and therefore on the extent of a possible goodwill impairment.

Other intangible assets

The GfK Group’s other intangible assets consist of internally generated intangible assets and miscellaneous intangible assets. To a very large extent, they represent software and market research panels, which have either been acquired externally or generated internally. Other key components are client relationships and brands capitalized as part of purchase price allocation.

Where an intangible asset has been subject to impairment, there is a reversal if a higher amount is recoverable at a later date. The carrying value after the reversal may not exceed the arithmetical carrying value, which would have resulted had the impairment not taken place in the past. The write-up is reported in the income statement in the item which previously included the impairment.

Internally generated intangible assets

At the GfK Group, internally generated intangible assets mainly comprise software and panel setup costs.

As a rule, software developed by companies in the GfK Group is used internally for analyzing and processing market research data. In some cases, the software is destined for external users and was written specifically to meet user requirements. Internal costs of software development are capitalized under non-current assets if the criteria according to IAS 38, Intangible Assets, are met. Amortization commences upon completion of the software.

Panel setup costs generally involve capitalized development costs for setting up new panels or expanding existing panels. Capitalized panel setup costs include:

› Spending on materials and services used to set up panels.

› Wages and salaries and other employment expenses for staff directly involved in setting up panels.

› Overheads necessarily incurred in panel setup, which can reasonably and regularly be allocated to this, based on cost accounting.

Costs from the preparation and application phases and maintenance costs for current panels cannot be capitalized. They are included in expenses. 

Panel setup costs are only written down if they are directly incurred in connection with a specific, fixed-term client order. As a rule, the amortization period in such cases is based on the duration of the contract or the useful useful life. In all other cases, the useful life of panels is indefinite and they are not subject to scheduled amortization. The value of panels is reviewed at least once a year as part of an impairment test.

Expenses for research activities are reported as expenses in the relevant period under review. Development costs, which did not result in a capitalizable intangible asset, are also reported as expenses.

Miscellaneous intangible assets

Miscellaneous intangible assets primarily include panels acquired externally, customer relations, software and brands.

Miscellaneous intangible assets are entered on the balance sheet at amortized cost and are subject to straight-line amortization. This does not apply to customer relations and only to a limited extent to brands. As a rule, the useful life of software and miscellaneous intangible assets is three to ten years.

Customer relations are generally subject to diminishing balance amortization over a period of 6 to 20 years at an individually determined customer churn rate of between 5 percent and 30 percent.

As a rule, brands are not subject to amortization and have an indefinite useful life. Where acquired brands are replaced by the GfK brand over a set period of time, they are subject to straight-line amortization. In such cases, the useful life is three years.

Intangible assets with an indefinite useful life are subject to an impairment test at least once a year. 

The interest on borrowing is capitalized for qualifying assets.

3.19 Tangible Assets     

Tangible assets are valued at acquisition or production costs less the cumulative depreciation. The interest on borrowing is capitalized for qualifying assets. Cumulative depreciation generally involves straight-line depreciation up to the balance sheet date and any impairment. The depreciation period corresponds to the useful life. Assets in the course of preparation are not subject to depreciation. 

The GfK Group generally applies the useful life periods indicated in the table below:

Asset Useful life in years
Administrative building 50
IT equipment 3 to 5
Cars and other vehicles 5
Office equipment 3 to 5
Office furniture 10 to 13

The item “Fixtures and fittings” also includes unfinished technical equipment.

Lease arrangements are entered on the balance sheet according to IAS 17, Leases, as either a finance or operating lease, depending on the type of agreement.

A finance lease is characterized by the fact that the risks and rewards of the leased asset are usually transferred to the lessee. With a finance lease, the leased asset is capitalized by the lessee, and a corresponding lease liability is reported. The lease liability is equivalent to either the present value of the minimum lease payments or the fair value of the leased asset at the start of the lease arrangement, depending on which is lower.

The capitalized leased asset is subject to straight-line depreciation. The depreciation period is the lease term or the economic useful life, whichever is shorter. Subject to fulfillment of the preconditions, an impairment is applied beyond that period.

The lease liability is amortized over the term of the lease agreement through lease payments. Discounts are written up by applying a constant interest rate to the remaining debt and reported in interest expenses under other financial expenses.

With regard to operating leases, the leased assets are entered on the lessor’s balance sheet. The lessee states his regular payments as rental expenses.

3.20 Financial Instruments     

Financial instruments are contracts which result in a financial asset with one company and a financial liability or an equity instrument with another.

Financial assets comprise, in particular, cash and cash equivalents, equity instruments held in other companies (e.g. shareholdings), trade receivables, other loans granted and receivables, as well as primary financial instruments and derivatives held for trading purposes. 

Financial liabilities regularly result in a return entitlement in cash or other financial liabilities. At the GfK Group, they primarily consist of liabilities to banks, trade payables, liabilities under finance lease agreements and derivative financial instruments.

At the GfK Group, financial instruments are entered on the balance sheet as bought or sold on the trade date, i.e. on the date on which the obligation to buy or sell a financial instrument was entered into.

With regard to fixed-income financial instruments, interest rate changes may result in a change in fair value and in the case of variable-rate financial instruments, in fluctuations in interest payments. In principle, current receivables and liabilities are not subject to interest rate risks.

Financial assets and financial liabilities are stated if the GfK Group is a contractual party in relation to a financial instrument. 

Financial assets and financial liabilities are valued at fair value when they are first recognized. With regard to financial assets which are not subsequently valued at fair value with impact on income, the transaction costs directly attributable to the acquisition are taken into account. The fair values stated on the consolidated balance sheet regularly correspond to the market prices of financial assets. If they cannot be determined directly on the basis of an active market, the financial assets are valued using standard market procedures (valuation models). 

These are based on instrument-specific market parameters. 

The fair values of financial instruments that are entered on the balance sheet at amortized cost are calculated in the same way. Non-interest-bearing and low-interest financial assets with a term of more than one year are discounted in principle. For financial assets with a remaining term of less than one year, it is assumed that the fair value corresponds to the nominal value. 

Financial assets are taken off the books if the contractual rights to payments arising from the financial assets expire or if the financial assets are transferred with all material risks and rewards. 

The loans and non-current fixed-term deposits reported under other financial assets are assigned to the “Loans and receivables” category. They are valued at amortized cost using the effective interest rate method.

Financial assets held for trading purposes are valued at fair value. They include derivative financial instruments which are not linked to an effective hedge agreement and whose classification as "Financial assets held for trading" is therefore mandatory. Any gain or loss resulting from the subsequent valuation of financial assets that are held for trading is reported in the consolidated income statement. 

In terms of the accounting policies applied to financial investments, the Management Board as the competent body stipulated at its discretion that financial instruments are never classified as held to maturity but instead always as available for sale.

At the GfK Group, the category "Financial assets available for sale" represents the residual amount of primary financial instruments, which were not allocated to any other category. They comprise investments in affiliated companies reported under other financial assets, other participations and other available-for-sale securities. 

In principle, the valuation is based on the fair value derived from the market price where a price quoted in an active market is available. Any gains and losses subsequently resulting from the valuation at fair value are recognized in other comprehensive income. This does not apply if an impairment is permanent or material, or to exchange rate related changes in the value of debt instruments. These are reported in the income statement. 

The accumulated gains and losses from the valuation at fair value, which are posted under other reserves, are only reported in the consolidated income statement on disposal of the financial assets. If the fair value cannot be reliably determined for equity instruments that are not quoted on the stock exchange, shareholdings, in particular, are valued at acquisition cost (less impairment where applicable). 

Impairment expenses are stated if the carrying value of a financial asset is higher than the present value of the future cash flows. An impairment test is carried out on every reporting date. In order to ascertain and objectively verify impairment, the following triggering events are considered:

› The debtor faces considerable financial difficulties.

› Observable data show that a measurable reduction in the expected future cash flows has occurred since the asset was first recognized.

To decide if an impairment has occurred, the existing loans, which are allocated to the “Loans and receivables” category and therefore subsequently valued at amortized cost, are analyzed. On the relevant reporting date, checks are performed to determine if there is an objective indication of impairment that should be taken into account on the balance sheet. The impairment amount is calculated on the basis of the difference between the carrying value of the asset and the recoverable value, which is the present value of the expected future cash flows and which is discounted at the original effective interest rate of the financial instrument. To simplify matters, any cash flow from current receivables is not discounted. Impairment of financial instruments in the “Loans and receivables” category is recorded in separate value adjustment accounts. The relevant value adjustment is removed upon disposal of the financial instrument. No direct decrease or increase in the carrying value of financial instruments in the “Loans and receivables” category takes place in principle.

The reclassification of financial assets and financial liabilities valued at fair value from one level of the valuation hierarchy to another is applied at the end of the fiscal year in which it occurred.

Financial liabilities are valued at fair value when they are recognized for the first time. The directly attributable transaction costs are also stated for financial liabilities that are not subsequently valued at fair value and amortized over the term, using the effective interest rate method. 

In principle, primary financial liabilities are valued at amortized cost. They include financial liabilities and trade payables as well as financial other liabilities and deferred items. Non-interest-bearing and low-interest liabilities with a term of more than one year are discounted. With regard to liabilities with a term of less than one year, it is assumed that the fair value corresponds to the repayable amount.

It is mandatory to classify any derivative financial instruments which are not linked to effective hedge agreements as held for trading. Accordingly, they must be included in the balance sheet at fair value through profit or loss. If the fair value is negative, a financial liability is reported.

Financial liabilities are taken off the books if the contractual obligations have been settled, extinguished or have expired.

Borrowing costs are recorded as expenses in the period in which they were incurred.

The market value of financial instruments to be reported at fair value is generally established on the basis of stock exchange prices. If no stock exchange prices are available, the financial instruments are valued using standard market procedures (valuation models) based on instrument-specific market parameters.

The discounted cash flow method is used to calculate the fair value, taking into account individual credit ratings and other market circumstances in the form of prevailing market credit ratings and liquidity spreads for determining the present value.

There are no liquid markets for financial instruments in the “Loans and receivables” category, which are valued at amortized cost. For short-term loans and receivables, the assumption is that the market value corresponds to the carrying value. With regard to all other loans and receivables, the market value is determined by discounting the expected future cash flow. The interest rates applied for loans are those which would have been used for new loans with a similar risk structure, original currency and loan term.

In terms of shares in unlisted companies, the carrying value is assumed to correspond to the market value. It would only be possible to establish the market value reliably on the basis of concrete divestiture negotiations.

Trade payables and financial current other liabilities generally have a remaining term of less than one year, so the carrying value is approximately consistent with the fair value.

For financial non-current liabilities, the fair values are determined as the present values of the payments associated with the liabilities.

3.21 Derivative Financial Instruments, Hedge Accounting     

The GfK Group completes transactions throughout the world in different currencies, which may result in an exchange rate risk. Cash deposits, investing in securities and raising bank loans are also in various currencies. This may result in risks from changes in exchange rates, interest rates and market prices.

More detailed information on currency and interest rate risks as well as the goals, strategies and process of risk management is provided in the risk report, which is part of the Group Management Report.

The GfK Group uses forward currency transactions as well as interest rate swaps to hedge against currency and interest rate risks.

Derivative financial instruments are reported in the balance sheet at acquisition cost as asset or liability at the time of the transaction and subsequently valued at fair value. Standard market procedures based on instrument-specific market parameters are used in the valuation of derivative financial instruments. Market prices are calculated on the basis of present value and option price models. Where possible, the relevant market prices and interest rates on the balance sheet date are used as input parameters for these models.

In hedge accounting, the reporting of changes in the value of derivative financial instruments differs, depending on whether the instrument is a fair value hedge, cash flow hedge or net investment hedge.

If the derivative financial instrument is used to hedge against the risk of changes in the value of assets or liabilities, it represents a fair value hedge. In this case, changes in the value of both the hedged underlying transaction and the derivative financial instrument are taken to the income statement.

With regard to changes in the value of cash flow hedges used to hedge underlying transactions against risks from fluctuations in the future cash flow, the effective portions of the fair value fluctuations are initially stated under other comprehensive income (OCI). If the effectiveness of a hedge is not within the range of 80 percent to 125 percent, the hedge is liquidated. The ineffective portions of hedges are charged directly to the income statement. A risk regarding the amount of the future cash flow exists, in particular, with variable rate loans and planned transactions that are highly likely to occur.

Once the hedged transaction affects the income statement, the accumulated gains and losses recognized in other reserves are released with impact on the income statement.

Net investment hedges can be used to hedge net investments in foreign subsidiaries. This may, for example, involve a foreign currency loan in the local currency of the shareholding acquired. Any exchange gains or losses from the reporting date valuation of the foreign currency loan pertaining to the effective portion are recognized in OCI, as is the case for cash flow hedges.

If the hedge is regarded as highly effective, the exchange gains and losses from the hedging transaction are posted in OCI. The release of this item with impact on the income statement does not occur at the end of the term of the hedging transaction but instead only upon sale or liquidation of the hedged item.

The prerequisite for any type of hedge accounting is that the correlation between the hedged item and the hedging transaction is accurately documented. In addition, the documentation must specify how the hedging transactions compensate the risk associated with the underlying transaction highly effectively as well as indicating the methods used to substantiate the effectiveness. 

Generally, the part of the changes in value not covered by the underlying transaction is taken to the consolidated income statement.

The GfK Group also enters into hedge agreements which cannot be reported according to the rules of hedge accounting. From a financial point of view, these hedge agreements comply with risk management principles. Furthermore, hedge accounting is not applied to foreign currency hedges relating to monetary assets and liabilities reported on the balance sheet. This is because the gains and losses realized on the underlying transactions as a result of currency translation are linked to the gains and losses on the derivative hedging instruments. They virtually offset each other in the consolidated income statement.

3.22 Receivables and Other Assets     

Receivables are stated at nominal value or, in the case of identifiable specific risks, at the lower attributable value. This lower attributable value takes sufficient account of the default risk.

Group-wide guidelines regulate hedging against the risk of non-payment. In calculating the required value adjustment for doubtful receivables, a significant level of estimation and assessment is needed. The main factors to be taken into account are the client’s credit rating, current economic developments and historical default rates.

A credit check of new clients should be obtained from a recognized credit agency if the order volume exceeds € 50 thousand. If no satisfactory information is available about the client, two-thirds of the order value is payable prior to delivery of data. The creditworthiness of existing clients must also be monitored on the basis of the specified rules. In addition, the credit risk is minimized by issuing invoices for prepayments and on-account payments.

3.23 Inventories     

Inventories are valued at the lower of acquisition or production costs and net realizable value. Due to their secondary importance to the consolidated financial statements of the GfK Group, inventories are reported under current other assets and deferred items.

3.24 Cash and Cash Equivalents     

Cash and cash equivalents contain cash on hand and in banks as well as liquid investments with a remaining term of less than three months.

3.25 Assets and Liabilities Held for Sale     

In the consolidated balance sheet, assets and liabilities with a carrying value that is primarily realized through disposal and not through ongoing use are reported separately from other assets and liabilities, under the balance sheet items “Assets held for sale” and “Liabilities held for sale.” Disposal within a year must be highly probable.

Non-current assets that are classified as held-for-sale are assessed at the lower of the carrying value and fair value minus costs of disposal. Their regular amortization is suspended. In the event of a decline in value, the impairment is initially assigned to goodwill and then proportionately to the remaining assets and liabilities. The impairment expenses are reported in the income statement. The calculation of the fair value less costs of disposal is based on estimates and assumptions, which involve some uncertainty.

3.26 Equity

Capital reserve

GfK SE’s equity which is not part of subscribed capital attributable to the capital contributions of shareholders and which does not originate from generated income is reported under the capital reserve. Services linked to deposits for the purposes of acquiring shares or granting privileges as well as other services aimed at strengthening equity are also reported under the capital reserve.

Retained earnings

Amounts created from income in the fiscal year under review or prior fiscal years are reported as retained earnings. This includes the statutory reserve to be set up from income. 

Other reserves

Other reserves comprise changes in Group equity, which are initially stated under other comprehensive income and which are not contributions by shareholders or dividend payments to shareholders. 

These changes result from exchange rate differences, unrealized profits and losses from available-for-sale securities, the valuation of hedges (cash flow hedges and net investment hedges) and actuarial gains and losses on defined benefit plans.

Minority interests

Any non-controlling shares are reported as minority interests.

3.27 Provisions     

In principle, provisions are set up when an obligation to a third party will probably result in an outflow of funds. In addition, a reliable estimate of the level of the obligation must be possible. Long-term interest-free or low-interest provisions are discounted.

Provisions for pensions are valued in line with the projected unit credit method, which takes into account future compensation increases. The amount shown in the balance sheet represents the present value of the defined benefit obligation, adjusted by the unrecognized past-service costs after offsetting the fair value of the plan assets. The discount rate is based on the interest rate for prior-ranking fixed-income corporate bonds.

Based on the net defined benefit liability or the net defined benefit asset, net interest is calculated on the net liability (net asset) from a defined benefit plan by multiplying the net liability (net asset) at the beginning of the period with the discount rate applied to the defined benefit obligation, i.e. the gross liability, at the start of the period. 

Pensions and similar obligations are reported in the balance sheet based on actuarial valuation methods. Underlying factors include actuarial assumptions such as discount rates, expected salary increases, mortality rates and rates of increase for healthcare costs. Changed conditions can mean that actuarial assumptions may materially differ from actual developments and subsequently result in significant changes in the obligations connected with payments to employees.

Payments for defined contribution plans are stated as expenses when they occur.

GfK Group companies are occasionally involved in legal disputes. The Management Board regularly analyzes the latest information on legal risks. Provisions are entered on the liabilities side for probable obligations, the amount of which includes estimated costs for legal advice. This takes into account the likelihood of an outcome unfavorable to the GfK Group and the possibility of being able to estimate the extent of the relevant obligations with sufficient reliability. For the purposes of the assessment of legal risks, GfK Group companies appoint internal and external legal counsel. 

Provisions are set up for additional obligations to third parties, which are likely to result in an outflow of funds in future but which are not liabilities, if there is more militating in favor of the existence of a present obligation than against it and when the anticipated amount of the claim can be estimated within a certain range. The most probable amount is applied within this range.

3.28 Financial Liabilities     

Financial liabilities include interest-bearing liabilities related to financing, in particular loans from banks and other lenders, liabilities under finance leases and other interest-bearing liabilities. 

The GfK Group reports rights to make delivery (put options or obligations) held by minority shareholders and variable purchase prices in connection with buying shares as purchase price elements which depend on future events and are impacted by future sales and EBIT. The minority interests concerned are not stated as shares held by other shareholders. The associated non-current or current financial liabilities are generally valued at fair value. Interest added to payment obligations is reported under interest expenses.

For possible adjustments to acquisition costs resulting from future events, which are recognized as liabilities at the time of acquisition, any changes in the value of liabilities from earn-outs and put options of minority shareholders assumed on or after January 1, 2010 are reported under other financial income in the income statement. The resultant profit or loss is adjusted in the cash flow statement under the item “Other non-cash income/expenses” within the cash flow from operating activity.

3.29 Trade Payables and Other Liabilities     

Trade payables and other liabilities are stated at repayment value. Obligations arising from invoices outstanding are reported under trade payables.

3.30 Liabilities on Orders in Progress     

Liabilities on orders in progress comprise payments on account and accrued amounts from the recognition of sales. As part of this item, sales are accrued which are tied to contractually agreed invoices for prepayments or payments on account but cannot yet be recognized as sales according to the sales recognition methods described above.

3.31 Overview of the Valuation Principles Applied

The table below shows the most important valuation principles applied when preparing the GfK Group’s consolidated financial statements:

ASSETS
Goodwill Impairment-only approach
Other intangible assets
with limited useful life Amortized acquisition or production costs
with indefinite useful life Impairment-only approach
Tangible assets Amortized acquisition or production costs
Financial assets
Shares in affiliated companies, other participations Acquisition costs
Loans and non-current fixed-term deposits Amortized costs
Held for trading purposes Fair value through profit or loss
Other financial assets available for sale Fair value recognized directly in equity
Trade receivables and other receivables Amortized costs
Financial other assets
Derivative financial instruments used as hedges Fair value recognized directly in equity
Derivative financial instruments not used as hedges Fair value through profit or loss
Miscellaneous financial other assets Amortized costs
Non-financial other assets Amortized costs
Short-term securities and fixed-term deposits Amortized costs
Cash and cash equivalents Amortized costs

LIABILITIES
Provisions
Pension provisions Projected unit credit method
Other provisions Discounted amount most likely to be paid
Interest-bearing financial liabilities
Liabilities from finance leases Present value of minimum lease payments
Purchase price components which depend on future events Fair value through profit or loss
Other interest-bearing financial liabilities Amortized costs
Financial other liabilities
Derivative financial instruments used as hedges Fair value recognized directly in equity
Derivative financial instruments not used as hedges Fair value through profit or loss
Miscellaneous financial other liabilities Amortized costs
Trade payables Amortized costs
Liabilities on orders in progress Amortized costs
Non-financial other liabilities Amortized costs

3.32 Consolidated Cash Flow Statement

The cash flow statement uses the cash flow from operating activity, investing activity and financing activity to reflect changes in the balance sheet item “Cash and cash equivalents.”

The cash flow from operating activity is derived indirectly from changes to the balance sheet items. They are adjusted for the effects of currency translation and changes in the scope of consolidation. Consequently, only limited reconciliation is possible between the changes in the balance sheet items according to the consolidated cash flow statement and the arithmetical changes in the consolidated balance sheet, schedule of movements in non-current assets and other information in the Notes to the consolidated financial statements.

3.33 Estimates     

The GfK Group’s consolidated financial statements are prepared in compliance with IFRS and require the use of assumptions and estimates. Some of these estimates involve circumstances where uncertainty is inherent and which may be subject to change. These estimates and assumptions were made by the Management Board, taking into account all known facts to the best of their knowledge in order to gain an accurate view of the net assets, financial position and results of operations. Nevertheless, actual figures for assets and liabilities as well as contingent liabilities on the balance sheet date, and income and expenses for the fiscal year may differ from these.

Estimates are used for the realization of sales under the percentage of completion method, in connection with the required value adjustment for doubtful receivables and in impairment tests for goodwill as well as other intangible and tangible assets. In addition, estimates are made in the purchase price allocation following business combinations, to assess the value of deferred tax assets and in the recognition and valuation of conditional purchase price obligations and provisions. Detailed explanations on the type of estimates necessary in these areas and on how the GfK Group makes these estimates are provided in the above description of accounting policies. The parameters applied to the impairment test for intangible assets and for the valuation of pension provisions in the reporting year are listed in these Notes under Section 16 “Intangible assets” and Section 26 “Provisions.”

The most important estimates regarding the GfK Group’s future performance and its business environment are described in the Outlook section of the Group Management Report.

4. Scope of Consolidation and Major Acquisitions     

4.1 Fully Consolidated Companies     

As at December 31, 2016, the scope of consolidation in accordance with IFRS included eight domestic (2015: nine) and 128 foreign (2015: 130) subsidiaries in addition to the parent company.

The table below shows the changes in fully consolidated subsidiaries in the period from January 1, 2016 to December 31, 2016:

FULLY CONSOLIDATED SUBSIDIARIES (number)

Jan. 1, 2016 Additions Disposals Dec. 31, 2016
Germany 9 0 – 1 8
Abroad 130 10 – 12 128
Total 139 10 – 13 136

As at February 4, 2016, wholly-owned subsidiary Soluciones Netquest de Investigación, S.L., Barcelona, Spain, was acquired and consolidated for the first time including its subsidiaries: 

› Netquest Iberia, S.L.U., Barcelona, Spain 

› Netquest Mexicana, S.A. de C.V., Mexico City, Mexico 

› Netquest Brasil Pesquisa de Mercado Ltda., São Paulo, Brazil 

› Netquest Estudios Cono Sur Ltda., Santiago, Chile 

› Netquest USA Inc., New York, New York, USA

› Netquest S.A.S., Bogotá, Colombia 

› Wakoopa, B.V., Amsterdam, Netherlands. 

All eight companies operate in the Consumer Experiences sector.

Goodwill of € 24,960 thousand resulted from this acquisition, which relates to the Consumer Experiences sector. The goodwill primarily represents the expertise of employees in the firms, which cannot be capitalized separately. It is not tax deductible.

Following the acquisition of the Netquest Group, synergies are set to arise in terms of the GfK Group’s digital direction at global level. As yet unreported intangible assets and the associated deferred taxes in the amount of € 9,060 thousand in net terms were identified during the acquisition process. They mainly relate to customer relations, panels and software. The preliminary purchase price allocation as at June 30, 2016 was finalized as at December 31, 2016.

Pre-merger On the date of acquisition
Non-current assets 7,251 19,368
Current assets 4,576 4,576
Cash and cash equivalents 779 779
Non-current liabilities and provisions 2,472 5,529
Current liabilities and provisions 9,139 9,139

 

These companies contributed € 14,942 thousand to the GfK Group’s consolidated sales in fiscal year 2016. Accumulated net income from these companies since they have joined the GfK Group amounted to € – 2,088 thousand. 

For the period from January 1, 2016 to the time of first consolidation on February 4, 2016, the above-mentioned companies achieved sales of € 2,185 thousand and reported a net income of € – 910 thousand.

GfK Retail and Technology Belgium N.V., Leuven, Belgium, which has activities in the Consumer Choices sector and was established in the prior year, was consolidated for the first time as at January 1, 2016. Also established in the prior year, GfK Netherlands B.V., Utrecht, the Netherlands, was consolidated for the first time on January 1, 2016. The company’s activities are based in the Consumer Choices and Consumer Experiences sectors. As at January 1, 2016, GfK Panelservices Benelux B.V., Dongen, the Netherlands, which operates in the Consumer Experiences sector, was merged with GfK Intomart B.V., Hilversum, the Netherlands, which has activities in both the Consumer Choices sector and the Consumer Experiences sector. Adimark S.A., Providencia, Santiago, Chile, was merged with GfK Adimark Chile S.A., Providencia, Santiago, Chile, as at July 31, 2016. These mergers within the GfK Group had the sole purpose of simplifying the Group structure and have no immediate and material financial impact.

As at April 30, 2016, the GfK Group completed the divestiture of its market research business in Crop Protection and Animal Health, which comprised share deals for GfK Kynetec Group Limited, St Peter Port, Guernsey, UK as well as GfK Kynetec Limited, London, UK, and GfK Kynetec France SAS, Saint-Aubin, France, as well as several asset deals. These Consumer Choices business units were divested as at April 30, 2016 and resulted in income of € 5,092 thousand, which was reported under other operating income.

In connection with the planned divestiture of the Crop Protection and Animal Health business, non-current assets amounting to € 24,462 thousand, current assets totaling € 11,267 thousand and cash and cash equivalents of € 523 thousand were reclassified as assets held for sale as at December 31, 2015. Liabilities held for sale amounted to € 7,034 thousand.

On October 3, 2016, all shares in Genius Digital Ltd, London, UK, were sold as part of a management buy-out. The company, whose activities were based in the Consumer Choices sector, was divested as at that date. This transaction resulted in expenses of € 4,351 thousand, which were reported under other operating expenses.

As part of these divestitures, the following assets and liabilities were transferred:

 

 

Divestiture of Crop Protection and Animal Health business Divestiture of Genius Digital Ltd Total
Non-current assets 21,744 1,703 23,447
Current assets 8,341 3,400 11,741
Cash and cash equivalents 2,169 0 2,169
Non-current liabilities and provisions 8,798 790 9,588
Current liabilities and provisions 3,454 113 3,567

The purchase price for this transaction was € 20,235 thousand, which was fully paid in cash.

All shares in NOP Global Limited, London, UK, were sold on June 3, 2016. The divestiture of the company therefore occurred on that date. No assets and liabilities were transferred.

NOP World Limited, London, UK, was wound up on January 19, 2016 and divested with retroactive effect from January 1, 2016. On September 24, 2016, GfK Blue Moon Research and Planning Pty. Limited, and GfK Blue Moon Quantitative Research Pty. Limited, both based in St Leonards, Australia, were wound up and therefore divested. IFR Monitoring USA Inc., Niagara Falls, New York, USA, was wound up as at December 31, 2016 and divested at the same time.

In addition, GfK Beteiligungsgesellschaft mbH, Nuremberg, Germany, was divested as at January 1, 2016 because it was not material to the GfK Group’s position.

4.2 Companies of Minor Importance     

In the year under review, the GfK Group did not include 26 companies (2015: 29) in the consolidated financial statements due to their minor importance for the net assets, financial position and results of operations of the Group.

Overall, external sales, annual income, total assets and cash flows from these companies were of minor importance, as in the prior year, versus the corresponding figures in the consolidated financial statements. 

4.3 Associated Companies     

In the consolidated financial statements as at December 31, 2016, shareholdings in seven associated companies (2015: ten) were reported in the balance sheet, none of which were associates in Germany (2015: one associate in Germany).

The shareholding in YouEye Inc., Mountain View, California, USA, was sold on February 22, 2016.

On March 9, 2016, the shares in USEEDS GmbH, Berlin, Germany, were sold.

The stake in St. Mamet Saisie Informatique (SMSI) S.A.R.L., Saint Mamet la Salvetat, France, was sold on July 5, 2016. 

4.4 Other Participations

The number of other participations was down from four to three following the disposal of shares in Qosmos SA, Amiens, France. This resulted in income of € 5,813 thousand, which was reported under other income from participations.

5. Sales 

The breakdown of sales according to type is as follows:

2015 2016
Sales to third parties 1,537,528 1,479,344
Sales to Group companies 3,206 2,077
Sales to related parties 2,692 2,393
Sales 1,543,426 1,483,814

The breakdown of sales according to sector and region is shown in Section 34 “Segment reporting.”


6. Cost of Sales     

The breakdown of cost of sales is shown in the table below:

2015 2016
Personnel expenses 537,941 529,773
Other cost of sales 461,125 438,635
Amortization/depreciation and impairment 39,498 64,764
Cost of sales relating to Group companies 6,252 4,635
Cost of sales (before research and development costs) 1,044,816 1,037,807
Research and development costs 17,118 21,287
Cost of sales (including research and development costs) 1,061,934 1,059,094

Other cost of sales mainly comprises services purchased.


7. Selling and General Administrative Expenses     

The breakdown of selling and general administrative expenses is shown in the table below:

2015 2016
Personnel expenses 198,889 193,770
Other selling and general administrative expenses 81,219 73,354
Amortization/depreciation and impairment 22,118 29,328
Selling and general administrative expenses relating to Group companies 3 20
Selling and general administrative expenses 302,229 296,472

The item “Amortization/depreciation and impairment” includes adjustments of operating receivables in addition to amortization, depreciation and impairment of other intangible assets and tangible assets.

Other selling and general administrative expenses mainly consist of rental expenses, consultancy fees for consulting and other external services, travel expenses, charges for telecommunications, data transmission and processing as well as maintenance expenses.


8. Other Operating Income     

Other operating income includes the items listed in the following table:

2015 2016
Income from deconsolidation 0 5,092
Currency exchange gains 2,306 4,528
Reversal of impairments 0 783
Miscellaneous 17,507 5,982
Other operating income 19,813 16,385

Currency exchange gains mainly comprise profits on foreign currency transactions in U.S. dollars and pound sterling as well as the Japanese yen.

Income from divestiture resulted from the sale of market research business in Crop Protection and Animal Health.

Miscellaneous other operating income comprises profit from the divestiture of the Print Center in Switzerland and USEEDS GmbH, Berlin, Germany, amounting to € 1,252 thousand in total. In addition, this item primarily includes income from letting property and from passing on costs. In the prior year, it comprised income from the dissolution of the cross-shareholding with The NPD Group, Inc., USA. 


9. Other Operating Expenses     

Other operating expenses include the items listed in the table below, which cannot be assigned to functional costs.

2015 2016
Goodwill impairment 39,418 136,942
Personnel expenses 14,504 21,050
Expenses from deconsolidation 0 4,351
Currency exchange losses 4,545 4,187
Amortization/depreciation and other impairment 24,376 3,541
Miscellaneous 12,082 29,794
Other operating expenses 94,925 199,865

The goodwill impairment amounting to € 136,942 thousand (2015: € 39,418 thousand) resulted from the reassessment of growth prospects in the Consumer Experiences sector.

Personnel expenses primarily related to severance payments in connection with positions which were no longer filled due to restructuring in line with the new strategic direction of the relevant business divisions (€ 14,371 thousand, 2015: € 13,897 thousand).

Currency exchange losses mainly comprise losses on foreign currency transactions in U.S. dollars, Japanese yen, pound sterling and Singapore dollars of companies which use the euro as functional currency as well as on foreign currency transactions in euros, U.S. dollars and pound sterling of companies with a functional currency other than the euro.

Amortization, depreciation and other impairment pertain to unscheduled write-downs in connection with media measurement business of € 2,448 thousand (2015: € 0 thousand). In the prior year, special write-offs of € 20,034 thousand resulted from discontinued new product development and discontinued individual modules of an analysis and production platform.

Miscellaneous other operating expenses comprise a further € 11,114 thousand (2015: € 0 thousand) for consulting fees and risk provisions for media measurement business. Furthermore, expenses of € 6,225 thousand (2015: € 0 thousand) in connection with the shareholder structure are reported under this item. In addition, miscellaneous other operating expenses include expenses related to lease agreements and relocation (€ 3,848 thousand, 2015: € 4,447 thousand) as well as expenses in connection with share and asset deals (€ 3,943 thousand, 2015: € 3,164 thousand). Expenses in connection with irregularities that occurred in 2012 at GfK Arastirma Hizmetleri A.S., Istanbul, Turkey, only accounted for a minor amount of € 17 thousand (2015: € 1,349 thousand). 


10. Personnel Expenses     

The expense items in the consolidated income statement include the personnel expenses listed in the following table.

2015 2016
Wages and salaries 646,255 638,189
Social security contributions 96,112 99,708
Expenses for retirement benefits 23,487 24,743
Personnel expenses 765,854 762,640

11. Adjusted Operating Income

Adjusted operating income is the internal management indicator of the GfK Group, which is explained in detail in the Group Management Report. It is determined as follows: 

2015 2016
Operating income 104,151 – 55,232
Goodwill impairment 39,418 136,942
Write-ups and write-downs of additional assets identified on acquisitions 4,314 16,536
Income and expenses in connection with share and asset deals – 8,655 4,667
Income and expenses in connection with reorganization and improvement projects 22,772 22,096
Personnel expenses for share-based incentive payments 1,896 7,358
Currency conversion differences 2,240 – 341
Expenses from litigation, compliance cases and terminated projects 22,924 16,851
Remaining highlighted items – 1,481 6,416
Adjusted operating income 187,579 155,293

11.1 Write-ups and Write-downs of Additional Assets Identified on Acquisitions

The composition of write-ups and write-downs of additional assets identified on acquisitions as well as their allocation to items in the consolidated income statement are shown in the following table. 

2015 2016
Amortization
Cost of sales 1,171 1,233
Selling and general administrative expenses 3,731 3,888
Impairment
Cost of sales 919 5,570
Selling and general administrative expenses 1,208 6,590
Other operating expenses 1,288 271
Reversal of impairment
Cost of sales – 3,131 – 238
Selling and general administrative expenses – 872 0
Other operating income 0 – 778
Write-ups and write-downs of additional assets identified on acquisitions 4,314 16,536

Further details are provided in Section 16.6 “Amortization, impairment and reversals of impairment of intangible assets.”

11.2 Income and Expenses in Connection With Reorganization and Improvement Projects

Income and expenses in connection with reorganization and improvement projects primarily relate to expenses for severance payments as part of reorganization projects amounting to € 14,371 thousand (2015: € 13,897 thousand). This item also includes expenses amounting to € 2,644 thousand (2015: € 3,397 thousand) for the global REACH standardization project. 

11.3 Personnel Expenses for Share-Based Incentive Payments     

A Long-term incentive plan, which is described in detail in Section 3.17 “Long-term incentive plans for employees and executives of the GfK Group,” has been in place for GfK SE Management Board members since fiscal year 2010 and for selected GfK Group executives since fiscal year 2012. The table below shows the number, term and value of the virtual shares issued under this long-term incentive plan.

Tranche 2 3 4 5 6 7
Year issued 2011 2012 2013 2014 2015 2016
Year of payment 2015 2016 2017 2018 2019 1) 2020 1)
Number of virtual shares issued (quantity) 4,658 27,074 45,516 43,751 118,383 128,585
Fair value of a virtual share in € on the issue date 34.64 30.70 37.08 41.61 33.66 33.82
Fair value of a virtual share in € 43.39 43.39 43.39 43.39 43.39 43.39

1) For half of the virtual shares granted to Management Board members, payment is two years later

Total expenses for the plan amounted to € 7,358 thousand in fiscal year 2016 (2015: € 1,896 thousand). The increase versus the prior year is primarily the result of the retirement of a Management Board member and the rise seen in the GfK share price on account of the public takeover bid from Acceleratio Capital N.V., headquartered in Amsterdam, the Netherlands. More detailed information on this can be found in Section 36 “Events after the balance sheet date” in these Notes.  

11.4 Expenses from Litigation, Compliance Cases and Terminated Projects     

The highlighted item “Expenses from litigation, compliance cases and terminated projects” was introduced in the reporting year for the purposes of transparency. The circumstances it covers, combined with the “Remaining highlighted items” described below, were previously included in the item “Income and expenses from one-off effects and other exceptional circumstances.” This reclassification was purely aimed at providing details on how adjusted operating income is derived, with no change in the key indicator itself.

The item comprises risk provisions for media measurement business of € 13,562 thousand (2015: € 0 thousand). In the prior year, the item included expenses in connection with the discontinuation of network-based development activities for Mobile Insight/Location Insight as well as two modules of the digital analysis and production platform CPIMS/NEO totaling € 20,034 thousand. These expenses amounted to only € 190 thousand in the reporting year.

Total expenses of € 2,122 thousand were incurred during the fiscal year (2015: € 226 thousand) for labor tribunal proceedings and the resultant social security risks.

The expenses resulting from irregularities at GfK Arastirma Hizmetleri A.S., Istanbul, Turkey, amounted to € 17 thousand in 2016 (2015: € 1,349 thousand).

11.5 Remaining Highlighted Items     

The remaining highlighted items comprise expenses of € 6,225 thousand (2015: € 0 thousand) in connection with the shareholder structure.

Total income of € 1,102 thousand was reported in 2015 (2016: € 0 thousand) following the sale of a property of GfK Switzerland AG, Hergiswil, Switzerland.


12. Other Financial Income     

Other financial income breaks down as follows:

2015 2016
Interest and similar income due from banks 897 659
Other interest income 1,277 1,053
Interest income 2,174 1,712
Exchange rate related financial income 24,275 22,998
Miscellaneous other financial income 3,718 50
Other financial income 30,167 24,760

Exchange rate related financial income mainly comprises currency exchange gains on investments, financial receivables and financial liabilities, bank balances in foreign currency and income from currency hedging transactions. These amounts and their development must be seen in connection with the corresponding currency exchange losses in other financial expenses.

Valuation adjustments of purchase price commitments for the acquisition of participations and assets (put options and obligations) with impact on income, which are included in miscellaneous other financial income, amounted to only € 50 thousand (2015: € 3,681 thousand).


13. Other Financial Expenses

Other financial expenses are composed as follows:

2015 2016
Interest and similar expenses due to banks 5,272 7,445
Other interest expenses 13,456 6,684
Interest expenses 18,728 14,129
Exchange rate related financial expenses 26,678 21,875
Miscellaneous other financial expenses 3,026 1,435
Financial expenses 48,432 37,439

The fixed-interest bond worth € 186 million, which was issued on April 1, 2011 and featured a 5 percent coupon, was repaid on April 14, 2016. Interest expenses incurred in the period up to April 14, 2016 of € 2,226 thousand (2015: € 10,100 thousand) are included in other interest expenses. In addition, this item comprises € 1,090 thousand (2015: € 1,120 thousand) in interest expenses on future purchase price liabilities for acquisitions.

Exchange rate related financial expenses essentially represent currency exchange losses on investments, financial receivables and liabilities as well as bank accounts held in foreign currency and expenses for currency hedging transactions. These amounts and their development must be seen in connection with the corresponding currency exchange gains in other financial income.

Further information regarding the use of derivative financial instruments are provided in Section 29 “Financial instruments” and Section 30 “Risk management relating to market, credit and liquidity risks.” 


14. Tax on Income from Ongoing Business Activity     

The components of income tax expense are as follows:

2015 2016
Current tax expense/benefit 42,320 49,686
Deferred tax expense/benefit 4,843 24,021
Tax expense/benefit 47,163 73,707

Current tax expense comprises in addition to income tax expense related to the current year of € 44,314 thousand (2015: € 44,760 thousand), current tax expense related to prior years amounting to € 6,988 thousand (2015: tax benefit € 1,139 thousand) and tax benefit from the utilization of tax losses in prior years totaling € 1,616 thousand (2015: € 1,301 thousand).

Deferred tax expense amounting to € 7,357 thousand (2015: € 6,356 thousand) results from changes in losses carried forward relating to taxable income for the current year. In the reporting year deferred tax expense comprises adjustments of deferred tax assets related to prior years amounting to € 8,588 thousand (2015: € 156 thousand) as well as a deferred tax expense from the reassessment of deferred tax assets arising from interest limitation carried forward amounting to € 8,696 thousand (2015: € 0 thousand).

The tax rate for GfK SE and the German tax group members includes the corporate tax rate of 15 percent plus a solidarity surcharge of 5.5 percent thereon as well as the effective trade tax rate of 15.645 percent. This results in an overall tax rate of 31.47 percent as at December 31, 2016. For foreign companies current and deferred tax are calculated based on country-specific tax rates.

The table below shows the reconciliation of the expected income tax expense on the basis of the overall tax rate for GfK SE and the actual income tax expense reported for the Group:

2015 2016
Income from ongoing business activity 87,892 – 62,752
Overall tax rate for GfK SE 31.47 % 31.47 %
Expected tax expenses 27,659 – 19,746
Tax rate differences 1,019 – 916
Goodwill impairment 12,405 43,096
Non-deductible expenses 8,228 15,263
Tax-exempt income – 4,429 – 8,965
Adjustment of deferred tax due to changes in tax rates – 1,435 – 873
Changes in deferred tax assets not recognized – 693 25,956
Income taxes related to prior years – 976 13,960
Withholding tax and other foreign taxes 2,568 4,942
Other 2,817 990
Tax expenses reported 47,163 73,707

Deferred taxes are presented in the consolidated balance sheet as follows:

Dec. 31, 2015 Dec. 31, 2016
Deferred tax assets 43,578 30,102
Deferred tax liabilities – 86,373 – 96,817
Net deferred tax liabilities – 42,795 – 66,715

The change in the net amount of deferred tax is as follows:

2015 2016
Net deferred tax liabilities as at January 1 – 34,149 – 42,795
Change in the scope of consolidation – 469 238
Reclassification of deferred taxes to the item assets and liabilities held for sale – 115 0
Deferred tax expenses (–)/income (+) through profit or loss – 4,843 – 24,021
Change in deferred tax recognized without impact on income resulting from the revaluation of defined benefit pension commitments 58 1,718
Change in deferred tax recognized without impact on income related to other items 2,024 – 190
Currency effects and other changes – 5,301 – 1,665
Net deferred tax liabilities as at December 31 – 42,795 – 66,715

Deferred tax assets and liabilities are related to the following:

Dec. 31, 2015 Dec. 31, 2016
Deferred tax assets Deferred tax liabilities Deferred tax assets Deferred tax liabilities
Goodwill 508 – 46,032 272 – 54,818
Other intangible assets 1,236 – 75,628 791 – 73,532
Tangible assets 1,852 – 2,190 687 – 1,482
Financial assets 1,512 – 7,206 1,989 – 885
Receivables and other assets 1,582 – 12,673 4,165 – 17,133
Non-current liabilities 14,535 – 448 17,718 – 1,103
Current liabilities 25,115 – 1,338 25,255 – 1,451
Total temporary differences 46,340 – 145,515 50,877 – 150,404
Tax losses carried forward 43,031 30,490
Interest limitation carried forward 12,032 0
Tax credits 1,317 2,322
Deferred tax (before netting) 102,720 – 145,515 83,689 – 150,404
Netting – 59,142 59,142 – 53,587 53,587
Deferred tax as per the balance sheet 43,578 – 86,373 30,102 – 96,817
Net amount of deferred tax liabilities – 42,795 – 66,715

As at December 31, 2016 tax losses carried forward for corporate tax purposes of € 207,881 thousand (December 31, 2015: € 201,542 thousand) and losses carried forward for other income tax purposes at local level are amounting to € 26,644 thousand (December 31, 2015: € 56,000 thousand). For companies which reported deferred tax assets for tax losses carried forward and which incurred losses in the reporting year or the previous year, net deferred tax assets of € 5,330 thousand (December 31, 2015 (adjusted): € 6,479 thousand) are recognized, since sufficient future profits are expected.

To assess this profit expectation, the Management Board considers the income position in the past and forecast future income, which is calculated on the basis of approved business plans. In addition, information about losses from prior years not yet utilized for tax purposes and other relevant considerations were taken into account in this assessment.

For tax losses carried forward for which no deferred tax assets are recognized, the expiry dates are as follows:

Dec. 31, 2015 Dec. 31, 2016
Expiration within the next 5 years 15,942 32,542
Expiration within 5 to 10 years 11,055 2,337
Expiration in more than 10 years 344 330
Unlimited carryforward period 29,069 69,356
Losses carried forward for corporation tax purposes 56,410 104,565

Dec. 31, 2015 Dec. 31, 2016
Limited carryforward period 27,252 114
Unlimited carryforward period 1,647 6,264
Losses carried forward for local tax 28,899 6,378

In addition to the unrecognized tax loss carried forward mentioned above, no deferred tax assets are recognized for temporary differences amounting to € 20,964 thousand (December 31, 2015: € 11,481 thousand) and interest limitation carried forward of € 36,374 thousand (December 31, 2015: € 0 thousand) and tax credits of € 440 thousand (December 31, 2015: € 390 thousand).

The GfK Group recognizes deferred taxes on retained profits of foreign subsidiaries, provided that these profits are distributable and will be distributed in the foreseeable. Deferred tax liabilities are not recognized for temporary differences of €27,661 thousand (2015: €17,780 thousand), since it is not intended to distribute underlying retained earnings of foreign subsidiaries in the foreseeable future.

Dividends to shareholders of GfK SE do not result in income tax consequences at the level of GfK SE.

15. Earnings per Share     

Earnings per share are derived as follows: 

2015 2016
Consolidated total income attributable to equity holders of the parent 36,773 – 140,555
Weighted average of shares outstanding (number) - non-diluted - 36,503,896 36,503,896
Weighted average of shares outstanding (number) - diluted - 36,503,896 36,503,896
Earnings per share in € 1.01 – 3.85
Earnings per share (diluted) in € 1.01 – 3.85

There are no circumstances that may result in dilution.


16. Intangible Assets     

The movement in intangible assets is shown in the table below: 

Goodwill Internally generated intangible assets Miscellaneous intangible assets Total intangible assets
ACQUSITION AND MANUFACTURING COSTS
As at January 1, 2015 995,386 220,248 469,508 1,685,142
Exchange rate changes 58,692 – 1,626 31,075 88,141
Additions from business combinations 4,437 398 3,525 8,360
Other changes in the scope of consolidation 0 0 0 0
Additions 0 59,696 8,856 68,552
Disposals – 1,433 – 2,143 – 8,437 – 12,013
Reclassification as assets held for sale – 6,907 – 7,799 – 31,981 – 46,687
Reclassifications 0 458 – 279 179
As at December 31, 2015 1,050,175 269,232 472,267 1,791,674
As at January 1, 2016 1,050,175 269,232 472,267 1,791,674
Exchange rate changes – 25,197 4,526 4,407 – 16,264
Additions from business combinations 27,987 10,747 12,354 51,088
Other changes in the scope of consolidation 0 – 791 – 2,880 – 3,671
Additions 597 47,804 5,399 53,800
Disposals 0 – 876 – 2,253 – 3,129
Reclassifications 0 – 522 206 – 316
As at December 31, 2016 1,053,562 330,120 489,500 1,873,182
CUMULATIVE AMORTIZATION
As at January 1, 2015 222,677 83,309 339,728 645,714
Exchange rate changes 14,173 848 20,885 35,906
Additions from business combinations 0 122 1,535 1,657
Other changes in the scope of consolidation 0 0 0 0
Additions 0 20,827 16,280 37,107
Disposals – 96 – 2,013 – 8,517 – 10,626
Reclassification as assets held for sale 0 – 1,990 – 22,694 – 24,684
Impairments 39,418 20,337 4,889 64,644
Reversal of impairments 0 0 – 4,003 – 4,003
Reclassifications 0 220 – 54 166
As at December 31, 2015 276,172 121,660 348,049 745,881
As at January 1, 2016 276,172 121,660 348,049 745,881
Exchange rate changes – 2,273 1,303 2,901 1,931
Additions from business combinations 0 4,844 188 5,032
Other changes in the scope of consolidation 0 – 410 – 3,027 – 3,437
Additions 0 30,155 13,117 43,272
Disposals 0 – 881 – 2,149 – 3,030
Impairments 136,942 9,473 14,028 160,443
Reversal of impairments 0 – 5 – 1,017 – 1,022
Reclassifications 0 – 44 49 5
As at December 31, 2016 410,841 166,095 372,139 949,075
CARRYING VALUES
As at January 1, 2015 772,709 136,939 129,780 1,039,428
As at December 31, 2015 774,003 147,572 124,218 1,045,793
As at January 1, 2016 774,003 147,572 124,218 1,045,793
As at December 31, 2016 642,721 164,025 117,361 924,107

 

Additions from business combinations to goodwill resulted from company acquisitions and divestitures in the reporting year. Further information on this is provided in Section 4, “Scope of consolidation and major acquisitions.”

16.1 Goodwill

At the beginning of 2016, the carrying value of goodwill amounted to € 774,003 thousand (2015: € 772,709 thousand). At year end, the carrying value stood at € 642,721 thousand. Of the decrease in goodwill of € 131,282 thousand (2015: increase of € 1,294 thousand), exchange rate related changes accounted for € 22,924 thousand (2015: – 44,519 thousand) and impairment of goodwill in the Consumer Experiences sector for € 136,942 thousand (2015: € 39,418 thousand). Additions of € 597 thousand (2015: disposals of € 1,337 thousand) resulted from the revaluation of purchase price obligations for the acquisition of shares. Investing and divestitures produced additions of € 27,987 thousand (2015: disposals of € 2,470 thousand). 

The reduction in goodwill reported in the balance sheet, based on the impairment converted at average exchange rates on the balance sheet date, amounted to € 136,959 thousand (2015: € 39,820 thousand).

16.2 Internally Generated Intangible Assets     

The breakdown of internally generated intangible assets is as follows: 

Dec. 31, 2015 With limited useful life With indefinite useful life Total
Software 95,482 0 95,482
Capitalized panel setup costs 18,368 31,116 49,484
Other 2,606 0 2,606
Internally generated intangible assets 116,456 31,116 147,572

Dec. 31, 2016 With limited useful life With indefinite useful life Total
Software 102,809 0 102,809
Capitalized panel setup costs 19,082 39,144 58,226
Other 2,990 0 2,990
Internally generated intangible assets 124,881 39,144 164,025

Capitalized panel setup costs have only a limited useful life if the panel was set up for a specific, fixed-term client contract. Otherwise, capitalized panel setup costs have an indefinite useful life.

16.3 Miscellaneous Intangible Assets

The breakdown of miscellaneous intangible assets is represented in the following tables:

Dec. 31, 2015 With limited useful life With indefinite useful life Total
Acquired panels 409 64,676 65,085
Customer relations 24,547 0 24,547
Brands 0 17,357 17,357
Software 13,590 0 13,590
Studies 0 0 0
Other 3,639 0 3,639
Miscellaneous intangible assets 42,185 82,033 124,218

Dec. 31, 2016 With limited useful life With indefinite useful life Total
Acquired panels 205 64,351 64,556
Customer relations 19,404 0 19,404
Brands 986 17,898 18,884
Software 10,990 0 10,990
Other 3,527 0 3,527
Miscellaneous intangible assets 35,112 82,249 117,361

16.4 Intangible Assets with an Indefinite Useful Life     

Details of the allocation of significant goodwill to cash generating units are provided in the table below. Where the goodwill of cash generating units accounts for more than 5 percent of the GfK Group’s total goodwill, it is shown separately.

Dec. 31, 2015 Dec. 31, 2016
Consumer Experiences 402,079 269,130
of which
Northern Europe 228,940 165,281
North America 78,477 53,302
Central Eastern Europe/META 41,690 41,969
Other 52,972 8,578
Consumer Choices 371,924 373,591
of which
Northern Europe 151,291 150,820
North America 99,560 101,093
Southern and Western Europe 58,690 58,255
Asia and the Pacific 34,646 34,291
Other 27,737 29,132
Goodwill 774,003 642,721

Impairment as a result of the impairment test amounted to € 136,942 thousand (2015: € 39,418 thousand). The decline in goodwill of € 131,282 thousand (2015: € 1,294 thousand) resulted almost entirely from the impairment applied in the current fiscal year. This related to all regions of the Consumer Experiences sector except Central Eastern Europe/META.

Allocation of capitalized panel setup costs for internally generated panels with an indefinite useful life to the sectors is illustrated in the table below. 

Dec. 31, 2015 Dec. 31, 2016
Consumer Experiences 19,595 22,294
Consumer Choices 11,521 16,850
Capitalized panel setup costs with indefinite useful life 31,116 39,144

The increase in the Consumer Choices sector versus the prior year partly resulted from the expansion of a health panel in Germany and the expansion of a consumer goods panel in the USA. The increase in the Consumer Experiences sector was attributable to the addition of panels at the recently acquired Netquest Group, which are set to strengthen the GfK Group’s position in Latin America, Spain and Portugal.

Allocation of the acquired panels with an indefinite useful life to the sectors is shown in the table below. Overall, no material changes occurred versus the prior year.

Dec. 31, 2015 Dec. 31, 2016
Consumer Experiences 45,261 44,512
Consumer Choices 19,415 19,839
Acquired panels with indefinite useful life 64,676 64,351

Brands identified and capitalized as part of purchase price allocation generally have an indefinite useful life. These are established, well-known brands.

Allocation of brands with an indefinite useful life to the sectors is indicated in the following table.

Dec. 31, 2015 Dec. 31, 2016
Consumer Experiences 2,575 2,631
Consumer Choices 14,782 15,267
Brands with indefinite useful life 17,357 17,898

16.5 Intangible Assets of Material Importance

Intangible assets of material importance in the GfK Group are intangible assets with an individual carrying value of more than € 5 million. The total values of these intangible assets of material importance represent a subset of total intangible assets and are shown in the following table.

Dec. 31, 2015 Dec. 31, 2016
Goodwill 774,003 642,721
Panels 63,711 68,050
Software 41,420 54,315
Brands 14,782 15,267

Software mainly comprises the internally generated StarTrack analysis and production system in the Consumer Choices sector, which is adjusted to client requirements on an ongoing basis. The individual components of the analysis and production system have a useful life of five years. In addition, the Drive software is included, which is a new end-to-end system in the Consumer Experiences sector.

With regard to panels, the increase mainly resulted from the addition of a high-quality panel, certified to ISO standard, in connection with the acquisition of the Netquest Group.

The brands category relates to a brand from purchase price allocation in connection with the acquisition of the former NOP World. 

16.6 Amortization, Impairment and Reversals of Impairment of Intangible Assets     

Amortization, impairment and reversals of impairment of intangible assets are included in the consolidated income statement under the items shown below:

2015 Amorti­zation Impairments Reversal of impairments Total
Cost of sales – 25,484 – 919 3,131 – 23,272
Selling and general administrative expenses – 11,623 – 1,216 872 – 11,967
Other operating expenses 0 – 62,509 0 – 62,509
Total – 37,107 – 64,644 4,003 – 97,748

2016 Amorti­zation Impairments Reversal of impairments Total
Cost of sales – 33,562 – 13,400 239 – 46,723
Selling and general administrative expenses – 9,710 – 7,733 0 – 17,443
Other operating expenses 0 – 139,310 783 – 138,527
Total – 43,272 – 160,443 1,022 – 202,693

An impairment is stated when the carrying value of the cash generating unit subject to an impairment is higher than the future recoverable amount. This is determined as the higher amount of the fair value less cost of disposal or the value in use. The fair value less cost of disposal is the amount that could be achieved between knowledgeable, willing parties to an agreement which are independent of each other, after deducting the costs of disposal. Due to restrictions in determining the value in use, the fair value less costs of disposal usually exceeds the value in use and consequently represents the recoverable amount for the GfK Group.

Where other intangible assets were subject to impairment, a reversal occurs if a higher amount is recoverable at a later date. The carrying value after the reversal must not exceed the arithmetical carrying value, which would have resulted had the impairment not taken place in the past.

Impairment of assets resulted from impairment tests which were based on updated capital market data as well as business plans. The breakdown of impairment expenses, converted into Euros using the average exchange rate during the reporting year, is as follows:

2015 2016
Goodwill – 39,418 – 136,942
Panels – 1,629 – 10,846
Customer relations – 1,208 – 6,590
Software – 21,091 – 5,291
Concessions – 10 – 503
Brands – 1,288 – 271
Total – 64,644 – 160,443

 

Impairment expenses rose sharply versus the prior year. The impairment of goodwill was up from € 39,418 thousand in the prior year to € 136,942 thousand in the current fiscal year.

Impairment of panels also increased versus the prior year, totaling € 10,846 EUR (2015: € 1,629 thousand), with the North America region accounting for about half of this amount. In addition, an impairment was recorded in respect of customer relations, amounting to € 6,590 thousand (2015: € 1,208 thousand). More than half of this amount was attributable to the regions North America and Latin America.

To determine if and to what extent an impairment of goodwill exists, an impairment test is carried out at least once a year. Budget assumptions for the impairment test carried out at mid year on the goodwill in the region Central Eastern Europe/META turned out to be inaccurate. As a result, this goodwill was undervalued. The error was corrected by accordingly adjusting goodwill as at year end, with impact on the income statement.

Overall, the write-downs reported on the balance sheet for goodwill in the Consumer Experiences sector, converted into Euros using the mean exchange rate on the reporting date, were attributable to the following regions:

Dec. 31, 2015 Dec. 31, 2016
Northern Europe 0 – 39,604
Southern and Western Europe – 11,909 – 35,457
North America 0 – 30,772
Asia and the Pacific 0 – 19,076
Latin America 0 – 12,050
Central Eastern Europe/META – 27,911 0
Total – 39,820 – 136,959

The impairment essentially resulted from adjusted growth prospects in the above-mentioned regions.

The fair values less costs of disposal of the cash generating units in the Consumer Experiences sector, which were subject to impairment in the reporting year or prior year, are shown in the following table.

Dec. 31, 2015 Dec. 31, 2016
Northern Europe 387,039 198,898
North America 170,956 99,148
Central Eastern Europe/META 62,410 59,267
Southern and Western Europe 70,039 52,258
Latin America 19,602 11,867
Asia and the Pacific 48,792 6,726
Total 758,838 428,164

The following tables provide an overview of the goodwill tested in the impairment test and of the material assumptions used in the impairment test. For reasons of materiality, only the cash generating units which exceed 5 percent of the total goodwill of the GfK Group are listed individually. All other cash generating units are summarized in the following tables in the “Other CE” and “Other CC” columns.

Consumer Experiences (CE) Northern Europe North America Southern and Western Europe Central Eastern Europe/ META Other CE
Goodwill tested as at Dec. 31, 2016 before impairment 204,885 84,074 43,802 41,969 32,907
Duration of the detailed planning period 5 years 5 years 5 years 5 years 5 years
Average annual growth of external sales in the detailed planning period 4 % 5 % 3 % 1 % 3 %
Growth per year after the end of the detailed planning period 1.3 % 1.3 % 1.3 % 1.3 % 1.3 %
Discount rate as at Dec. 31, 2016 6.5 % 6.8 % 7.2 % 9.1 % 7.8% – 12.4 %

Consumer Choices (CC) Northern Europe North America Southern and Western Europe Other CC
Goodwill tested as at Dec. 31, 2016 before impairment 150,820 101,093 58,255 63,872
Duration of the detailed planning period 5 years 5 years 5 years 5 years
Average annual growth of growth of external sales in the detailed planning period 5 % 4 % 3 % 5 %
Growth per year after the end of the detailed planning period 1.3 % 1.3 % 1.3 % 1.3 %
Discount rate as at Dec. 31, 2016 6.5 % 6.8 % 7.2 % 7.8 % – 12.4 %

Recoverable amounts are determined on the basis of the future cash flow forecast. Planning figures approved by the Management Board for the next five years are used for this purpose. They are based on past experience, current results of operations and the Management Board’s assessment of the expected market environment. These planning figures were validated again, both on a sector-specific and regional basis. The expected average annual growth of external sales is therefore in line with past values and the expectations of the management. In view of the uncertainty about future developments, a 20 percent haircut was applied to the planned cash flow for the Consumer Experiences sector, as was also the case in the prior year. 

The following sensitivity analysis highlights the extent to which additional impairment would be required,

› if the discount rate was increased by 1 percentage point, 

› if the future cash flow decreased by 10 percent, and

› if a perpetuity growth rate of only 1.3 percent was already applied to segments with higher growth rates in the detailed planning for 2020 and 2021.

All other parameters remain unchanged in each case. The tables below provide an overview of the additional impairment required in each case if only the above-mentioned parameters changed for the cash generating units of the Consumer Experiences sector. The impact of the calculated sensitivities was taken into account up to minimum goodwill per region of zero.

2015 Northern Europe Southern and Western Europe Central Eastern Europe/META North America Latin America Asia and the Pacific Total
Deterioration of 1 percentage point in the discount rates – 10,261 – 6,492 – 16,753
Reduction of the future cash flow by 10 percent – 11,693 – 9,358 – 1,261 – 22,312
Recognition of perpetuity growth for years 4 and 5 – 316 – 1,976 – 2,292

2016 Northern Europe Southern and Western Europe Central Eastern Europe/MET A North America Latin America Asia and the Pacific Total
Deterioration of 1 percentage point in the discount rates – 33,014 – 7,358 – 1,209 – 15,751 - – 1,110 – 58,442
Reduction of the future cash flow by 10 percent – 27,143 – 7,358 – 3,060 – 15,049 - – 1,220 – 53,830
Recognition of perpetuity growth for years 4 and 5 – 19,049 - - – 7,810 - – 321 – 27,180

In the Consumer Choices sector, none of the changes in parameters would result in an impairment requirement.

The intrinsic value of the capitalized panel setup costs and brands with an indefinite useful life was also assessed as part of an impairment test. 

The table below provides an overview of the material intangible assets with an indefinite useful life reviewed in impairment tests as at the balance sheet date, as well as of the material assumptions used in the respective impairment test. The Digital Panel was a new addition whereas the Physician’s Consulting Network Panel, which was still included in the prior year, was below the materiality threshold of € 5 million at year-end.

US brand Access Panel Health Panel Digital Panel
Carrying value 15,267 35,212 11,183 8,525
Basis of the recoverable amount Value in use Value in use Value in use Value in use
Duration of the detailed planning period 5 years 5 years 5 years 5 years
Sector Consumer Choices Consumer Experiences Consumer Choices Consumer Experiences
Average annual growth of external sales in the detailed planning period 2 % 3 % 51 % 40 %
Growth per year after the end of the detailed planning period 1.3 % 1.3 % 1.3 % 1.3 %
Discount rate 6.8 % 6.8 % 6.4 % 8.9 %

17. Tangible Assets     

The movement in tangible assets is shown in the following table. 

Land and buildings Fixtures and fittings Total tangible assets
ACQUISITION AND MANUFACTURING COSTS
As at January 1, 2015 47,044 272,099 319,143
Exchange rate changes 2,350 – 1,383 967
Additions from business combinations 0 128 128
Other changes in the scope of consolidation 0 47 47
Additions 0 25,626 25,626
Disposals – 14,123 – 17,976 – 32,099
Reclassification as assets held for sale 0 – 4,470 – 4,470
Reclassifications – 124 – 55 – 179
As at December 31, 2015 35,147 274,016 309,163
As at January 1, 2016 35,147 274,016 309,163
Exchange rate changes 0 2,991 2,991
Additions from business combinations 0 1,506 1,506
Other changes in the scope of consolidation 0 – 92 – 92
Additions 81 17,847 17,928
Disposals 15 – 16,107 – 16,092
Reclassification as assets held for sale – 4,582 – 1,917 – 6,499
Reclassifications 0 316 316
As at December 31, 2016 30,661 278,560 309,221
CUMULATIVE DEPRECIATION
As at January 1, 2015 20,587 182,697 203,284
Exchange rate changes 1,167 1,240 2,407
Additions from business combinations 0 51 51
Other changes in the scope of consolidation 0 23 23
Additions 726 25,651 26,377
Disposals – 7,601 – 17,334 – 24,935
Reclassification as assets held for sale 229 714 943
Impairments 0 0 0
Reversal of impairments 0 – 4,062 – 4,062
Reclassifications 0 – 166 – 166
As at December 31, 2015 15,108 188,814 203,922
As at January 1, 2016 15,108 188,814 203,922
Exchange rate changes – 2 840 838
Additions from business combinations 0 1,284 1,284
Other changes in the scope of consolidation 0 29 29
Additions 717 28,499 29,216
Disposals – 21 – 15,571 – 15,592
Reclassification as assets held for sale – 2,329 – 1,869 – 4,198
Impairments 30 1,207 1,237
Reversal of impairments 0 0 0
Reclassifications 0 – 4 – 4
As at December 31, 2016 13,503 203,229 216,732
CARRYING VALUES
As at January 1, 2015 26,457 89,402 115,859
As at December 31, 2015 20,039 85,202 105,241
As at January 1, 2016 20,039 85,202 105,241
As at December 31, 2016 17,158 75,331 92,489

17.1 Leasing     

The GfK Group is the lessee of office space and business equipment under long-term lease agreements. Lease installments generally consist of a minimum lease payment plus a contingent lease payment, the amount of which is dependent on the scope of use of the leased asset. In cases in which the GfK Group takes over the risks and opportunities from the use of the leased asset to a substantial extent, they are capitalized (finance lease). Otherwise, the lease installments are recorded as an expense (operating lease). 

The GfK Group has no material finance lease agreements.

Operating lease

Within the scope of operating lease agreements, the payments listed in the following table were carried as expenses:

2015 2016
Minimum lease payments 49,744 48,662
Contingent lease payments 110 175
less sub-lease payments received – 548 – 1,104
Lease payments 49,306 47,733

Future minimum lease payments under non-terminable agreements were due as follows:

Dec. 31, 2015 Dec. 31, 2016
Within 1 year 46,996 43,639
Between 1 and 5 years 107,091 130,514
After more than 5 years 53,098 152,356
Future minimum lease payments under operating leases 207,185 326,509

In the reporting year, no contingent lease payments arose that would be recognized as expenses. 

The material operating lease agreements in the GfK Group are lease agreements for land and buildings, some with the option to extend the lease. They expire at different dates in the future.

An increase in future minimum lease payments of €126,000 resulted from a lease agreement for an office building in Nuremberg, Germany, signed in 2016. The lessor is to submit an application for planning permission by June 30, 2017. The contractually agreed fixed lease period is 15 years. Two extension options, each for a further five years, were agreed beyond that period. Use and the start of the lease are scheduled for December 1, 2019 at the earliest.



18. Financial Assets

18.1 Investments in Associates     

The GfK Group’s investments in associates are shown in the list of shareholdings in Section 41 of these Notes, where it is also stated which associated companies were not valued at equity for reasons of materiality.

There were no material investments in associates.
The GfK Group holds shares in various non-material associates.

The table below provides the aggregated financial information for all non-material associates valued at equity.

2015 2016
Pro rata carrying value as at December 31 651 966
Pro rata income for the period – 4,310 636

The pro rata carrying value and pro rata income for the period do not include any impairment (2015: € 2,168 thousand).

The pro rata income for the period indicated in the table above does not include any unreported losses on non-material associates valued at equity. For the current year, these shares of losses amount to € 50 thousand (2015: € 348 thousand). The accumulated loss shares amount to € 398 thousand (2015: € 348 thousand).

Disclosures on the associates which are not valued at equity and two joint arrangements in the GfK Group were waived for reasons of materiality.

18.2 Other Financial Assets     

The breakdown of other financial assets is provided in the following table.

Dec. 31, 2015 Dec. 31, 2016
Shares in affiliated companies 2,930 1,580
Other participations 970 52
Loans to affiliated companies 1,001 986
Loans to associates 156 226
Other loans 551 192
Other available-for-sale securities 2 168
Long-term fixed deposits 3 111
Other financial assets 5,613 3,315

The shares in affiliated, non-consolidated companies and other participations are classified as available for sale and reported at amortized cost, as no market prices exist for them, other methods of realistically estimating the fair value are not practicable, and determining the market value reliably would only be possible as part of concrete acquisition negotiations. A sale of the shares is not currently intended.

Further information on the GfK Group shares in affiliated companies and other participations is provided in the list of shareholdings in Section 41 of these Notes.


19. Other assets and deferred items     

The breakdown of non-current and current other assets and deferred items related to financial and non-financial other assets and deferred items is shown in the following table.

Dec. 31, 2015 Dec. 31, 2016
Financial non-current other assets and deferred items 10,985 6,376
Non-financial non-current other assets and deferred items 9,844 8,105
Non-current other assets and deferred items 20,829 14,481
Financial current other assets and deferred items 14,228 12,837
Non-financial current other assets and deferred items 24,134 27,210
Current other assets and deferred items 38,362 40,047

The breakdown of financial other assets and deferred items is as follows:

Dec. 31, 2015 Dec. 31, 2016
Financial non-current other assets and deferred items with a remaining term of more than 1 year
Non-derivatives:
Deposits 3,405 3,983
Receivables from divestitures not yet due 0 1,488
Interest receivables 364 364
Assets from the sale of real estate 3,761 70
Receivables from suppliers 25 36
Remaining financial non-current other assets and deferred items 186 435
Subtotal: non-derivatives 7,741 6,376
Derivatives:
Derivative financial instruments (not used as hedges) 3,226 0
Derivative financial instruments (used as hedges) 18 0
Subtotal: derivatives 3,244 0
Financial non-current other assets and deferred items 10,985 6,376
Financial current other assets and deferred items with a remaining term of up to 1 year
Non-derivatives:
Receivables from suppliers 2,908 2,984
Deposits 2,514 2,590
Receivables from divestitures not yet due 2 1,116
Receivables from customers 924 719
Bills receivable 588 703
Credit balances, refund claims 2,340 87
Interest receivables 842 83
Remaining financial current other assets and deferred items 1,240 1,374
Subtotal: non-derivatives 11,358 9,656
Derivatives:
Derivative financial instruments (not used as hedges) 2,663 3,181
Derivative financial instruments (used as hedges) 207 0
Subtotal: derivatives 2,870 3,181
Financial current other assets and deferred items 14,228 12,837
TOTAL: FINANCIAL OTHER ASSETS AND DEFERRED ITEMS 25,213 19,213
of which non-derivatives 19,099 16,032
of which derivatives 6,114 3,181

The receivables from divestitures not yet due mainly relate to the sale of Qosmos SA, Amiens, France.

The assets from the sale of real estate in the prior year related to a payment not yet due from the sale of real estate by GfK Switzerland AG, Hergiswil, Switzerland.

Value adjustments to other assets and deferred items are shown in the table below.

VALUE ADJUSTMENTS TO OTHER ASSEST AND DEFERRED ITEMS

2015 2016
As at Jan. 1 1,489 447
Additions 0 99
Releases 0 0
Utilization – 992 – 22
Changes in the scope of consolidation and other effects – 50 – 104
As at Dec. 31 447 420

The breakdown of non-financial other assets and deferred items is as follows:

Dec. 31, 2015 Dec. 31, 2016
Non-financial non-current other assets and deferred items with a remaining term of more than 1 year
Receivables from tax and other authorities 4,606 5,839
Deferred items 1,254 1,192
Receivables from income taxes 3,811 876
Miscellaneous non-financial non-current other assets and deferred items 173 198
Non-financial non-current other assets and deferred items 9,844 8,105
Non-financial current other assets and deferred items with a remaining term of up to 1 year
Deferred items 16,605 19,593
Receivables from tax and other authorities 4,812 5,888
Receivables from employees 1,577 774
Miscellaneous non-financial current other assets and deferred items 1,140 955
Non-financial current other assets and deferred items 24,134 27,210
TOTAL: NON-FINANCIAL OTHER ASSETS AND DEFERRED ITEMS 33,978 35,315

20. Trade Receivables     

The breakdown of trade receivables is as follows:

Dec. 31, 2015 Dec. 31, 2016
Trade receivables before value adjustments 402,134 414,728
less value adjustments – 5,877 – 5,910
Trade receivables 396,257 408,818

The movement in value adjustments to trade receivables is shown in the table below. 

VALUE ADJUSTMENTS TO TRADE RECEIVABLES

2015 2016
As at Jan. 1 7,250 5,877
Additions 3,138 2,283
Releases – 2,230 – 1,525
Utilization – 2,347 – 869
Changes in the scope of consolidation and other effects 66 144
As at Dec. 31 5,877 5,910

Any addition to value adjustments is reported in the consolidated income statement under selling and general administrative expenses.


21. Short-Term Securities and Fixed-Term Deposits

Short-term securities and fixed-term deposits of € 1,393 thousand (2015: € 1,456 thousand) include investments in money market funds amounting to € 1,370 thousand (2015: € 1,435 thousand).


22. Cash and Cash Equivalents     

The composition of cash and cash equivalents is shown in the following table.

Dec. 31, 2015 Dec. 31, 2016
Credit balances with banks 120,724 170,281
Cash equivalents and fixed-term deposits with a term of less than 3 months 9,639 4,175
Checks in transit – 1,252 – 1,185
Cash on hand and checks 348 419
Cash and cash equivalents 129,459 173,690

There are no significant restrictions regarding cash and cash equivalents.

23. Assets and Liabilities held for Sale

GfK Switzerland AG, Hergiswil, Switzerland, plans to sell a building in Hergiswil, Switzerland, in the second half of 2017. The sale procedure has started. The assets and liabilities related to the building therefore meet the reporting criteria of a disposal group. The building to be sold is assigned to the Other category.

The assets to be sold as part of this asset deal were reported on the balance sheet under the item “Assets held for sale.” The relevant debt capital was reported under the item “Liabilities held for sale.” The table below provides a breakdown of these balance sheet items.

Dec. 31, 2016
Assets held for sale
Land 1,230
Buildings 1,023
Fixtures and fittings 49
Assets held for sale 2,302
Liabilities held for sale
Non-current liabilities 140
Liabilities held for sale 140

Similar to the prior year, no impairment of non-current assets that were classified as assets held for sale occurred.

In the prior year, assets and liabilities held for sale related to the following circumstances:

› Divestiture of the market research business in Crop Protection and Animal Health, which comprised the following companies: GfK Kynetec Group Limited, St Peter Port, Guernsey, UK, GfK Kynetec Limited, London, UK, and GfK Kynetec France SAS, Saint-Aubin, France (share deals), as well as several asset deals. This business was previously assigned to the Consumer Choices sector. The accumulated income in connection with this disposal unit amounted to €5,180 thousand as at December 31, 2015. The transaction was completed on April 30, 2016.

› Sale of the Print Center, the printing shop affiliated with GfK Switzerland AG, Hergiswil, Switzerland, as part of an asset deal. The sale was completed on January 18, 2016. The business was previously assigned to the Other category.

› Divestiture involving the 50 percent shareholding in associate USEEDS GmbH, Berlin, Germany. The transaction was completed on March 9, 2016. The USEEDS business was previously assigned to the Consumer Experiences sector.

The composition of the balance sheet items “Assets held for sale” and “Liabilities held for sale” as at December 31, 2015 is shown in the table below.

Dec. 31, 2015 Divestiture of Crop Protection and Animal Health business Sale of Print Center in Switzerland USEEDS divestiture Total
Assets held for sale
Goodwill 6,907 0 0 6,907
Other intangible assets 15,096 0 0 15,096
Shares in associates 0 0 2,595 2,595
Other non-current assets 2,459 242 0 2,701
Trade receivables 8,966 319 0 9,285
Other current assets 2,824 0 0 2,824
Assets held for sale 36,252 561 2,595 39,408
Liabilities held for sale
Non-current liabilities 393 354 0 747
Trade payables 1,023 116 0 1,139
Liabilities on orders in progress 2,591 0 0 2,591
Other current liabilities 3,027 70 0 3,097
Liabilities held for sale 7,034 540 0 7,574

 

24. Due Dates of Assets

The trade receivables are due for payment as shown in the table below. 

Dec. 31, 2015 Dec. 31, 2016
Trade receivables 396,257 408,818
of which neither impaired nor overdue 278,880 296,354
of which not impaired and overdue as follows:
by up to 30 days 70,202 65,565
by between 31 and 90 days 33,006 34,243
by between 91 and 180 days 9,186 8,993
by between 181 and 360 days 3,134 2,042
by more than 360 days 1,582 1,458
for which new terms negotiated as otherwise overdue 267 163

In the GfK Group, a material portion of trade receivables is due when billed.

With regard to trade receivables with no impairment, there was no indication as at the reporting date of circumstances that may negatively affect their value.

Current other assets and deferred items are due for payment as shown in the table below.

Dec. 31, 2015 Dec. 31, 2016
Current other assets and deferred items (excluding inventories and receivables from employees) 36,750 39,237
of which neither impaired nor overdue 32,713 34,234
of which not impaired and overdue as follows:
by up to 30 days 3,436 1,368
by between 31 and 90 days 430 513
by between 91 and 180 days 3 982
by between 181 and 360 days 16 1,589
by more than 360 days 152 551
for which new terms negotiated as otherwise overdue 0 0

With regard to non-impaired current other assets and deferred items, there was no indication as at the reporting date that debtors would not fulfill their payment obligations.


25. Equity

25.1 Subscribed Capital     

GfK SE’s share capital was unchanged in fiscal year 2016.

The 36,503,896 no-par shares issued are fully paid in. Each shareholder is entitled to receive dividends on his shares in accordance with the relevant profit distribution resolution. Each of these no-par common shares grants one vote at the Annual General Assembly.

25.2 Authorized Capital     

The authorized capital approved by the Annual General Assembly on May 26, 2011 was canceled by resolution of the Annual General Assembly on May 28, 2015, and the Management Board was authorized, with the consent of the Supervisory Board, to increase the share capital of GfK SE against cash and/or contributions in kind on one or more occasions by up to € 55,000 thousand in the period up to May 27, 2020, whereby shareholders’ subscription rights may be excluded.

25.3 Contingent Capital     

The Annual General Assembly resolved on May 28, 2015 to increase the company’s contingent capital by up to € 21,000 thousand, divided into up to 5,000,000 new no-par bearer shares which carry dividend rights as at the start of the fiscal year in which they are issued. This contingent capital is used to grant shares to holders of options and/or convertible bonds.

The contingent capital of GfK SE totaled € 21,000 thousand as at December 31, 2016.

25.4 Equity Change Statement     

The equity change statement precedes these Notes.

Of the negative change in the difference from currency translation of € 21,654 thousand (2015: positive change of € 66,343 thousand), € 7,641 thousand resulted from changes in the scope of consolidation, mainly following the disposal of market research business in Crop Protection and Animal Health. Changes in revenue reserves (€ 8,322 thousand, 2015: € – 310 thousand), which largely correspond in terms of amount yet are opposite in nature, primarily resulted from the same transaction. The remaining change in the difference from currency translation was caused by the exchange rate trend in pound sterling. The figures exclude minority interests.

The change in actuarial gains and losses amounting to € 4,130 thousand (2015: € 3,066 thousand) mainly resulted from a discount rate which was 0.7 percentage points lower in Germany.

Of the amounts reported under other reserves, no material gains or losses were transferred to the consolidated income statement in fiscal year 2016, as was also the case in 2015.

In the reporting year, the same amount as in the prior year of € 23,728 thousand was distributed to shareholders of GfK SE. This corresponds to € 0.65 (2015: € 0.65) per share.

A total of € 4,427 thousand (2015: € 5,411 thousand) was paid out to minority interests. Total comprehensive income attributable to minority interests amounted to € 4,365 thousand (2015: € 1,436 thousand). This mainly comprised the share of consolidated total income attributable to minority interests of € 4,096 thousand (2015: € 3,956 thousand). The share of the change in the translation reserve attributable to minority interests of € 272 thousand had no significant impact in the reporting year (2015: € – 2,583 thousand).

25.5 Proposed Appropriation of Profits     

In accordance with the German Stock Corporation Act (AktG), the dividend that may be distributed is determined by the retained profit reported in the annual financial statements of the parent company GfK SE. These are prepared under the provisions of the German Commercial Code (HGB). The retained earnings and retained profit of GfK SE reported under the provisions of the HGB are available for distribution to the shareholders in their entirety. The capital reserve may not be distributed to shareholders.

The Management Board and Supervisory Board will propose to the Annual General Assembly to carry forward GfK SE’s profit for the year amounting to €126,920 thousand and retained earnings of €25,850 thousand without making any dividend payment.


26. Provisions

26.1 Long-term provisions     

The breakdown of long-term provisions is shown in the table below: 

Dec. 31, 2015 Dec. 31, 2016
Pension provisions 66,357 73,531
Other long-term provisions 14,220 25,098
Long-term provisions 80,577 98,629

Pension provisions

Pension commitments are based on statutory or contractual arrangements or are on a voluntary basis. Pension provisioning within the GfK Group is based both on defined contribution plans and defined benefit plans for each company. 

For defined contribution plans which are financed on the basis of external funds or insurance there are no further obligations for GfK companies other than paying contributions. Expenses for defined contribution plans also include employer contributions to statutory pension plans.

The basis of assessment of defined contribution plans is mainly the length of service with the company and the wage or salary level of the employee. However, the benefits can vary depending on the legal, fiscal and economic framework conditions of the country concerned. The expenses for defined contribution plans amounted to € 24,549 thousand in 2016 (2015: € 24,294 thousand).

The pension obligations arising from defined benefit plans are reported according to the projected unit credit method. Actuarial reports are produced annually by independent actuaries for defined benefit plans. The actuaries use actuarial calculations to determine the level of the pension obligations. The provisions to be reported on the balance sheet represent the balance of pension obligations plus asset ceilings and asset values. The present value of the defined benefit plans and pension assets is determined on the basis of economic and demographic assumptions, such as future salary increases and mortality rates.

Discrepancies between the actual values and the values expected based on assumptions are expressed as actuarial gains or losses (revaluations). Actuarial gains and losses are recognized in other comprehensive income. In the year under review, actuarial losses of € 5,848 thousand (2015: € 3,143 thousand) were posted in this way. This change also comprises the effects of currency translation. The related cumulative amount recognized in other reserves totaled € – 46,404 thousand as at December 31, 2016 (December 31, 2015: € – 40,556 thousand). All of the values indicated are the relevant figures before deferred taxes, excluding minority interests.

The calculation of obligations is based on the actuarial and statistical assumptions listed in the table below (weighted averages).

2015 2016
Discount rate 1.51 % 1.15 %
Rate of salary increase 2.25 % 2.08 %
Fluctuation rate 5.03 % 4.95 %
Expected growth in pension 0.65 % 0.65 %

Mortality rates for GfK companies in Germany were taken from the 2005 G guideline tables by Dr. Klaus Heubeck. For Switzerland, mortality rates were taken from the BVG 2015 actuarial table.

The breakdown of pension provisions reported in the consolidated balance sheet is shown below.

Dec. 31, 2015 Dec. 31, 2016
Present value of overall obligations 137,239 148,009
Fair value of the plan assets – 70,903 – 74,501
Net present value of obligations 66,336 73,508
Pension provisions 66,357 73,531
Other assets – 21 – 23
Net amount reported on balance sheet 66,336 73,508

Pension arrangements for material defined benefit plans are described in the following:

GfK Switzerland AG, Hergiswil, Switzerland, accounted for € 84,954 thousand (2015: € 80,183 thousand) of the defined benefit obligation and € 73,718 thousand (2015: € 70,207 thousand) of the plan assets. The plan is a modified defined contribution plan, where retirement benefits include a guaranteed minimum interest rate and set conversion rates. The benefits covering risks (invalidity and surviving dependents) are defined benefits. They go beyond the statutory minimum benefit in each case. The pension fund has the legal status of a foundation which is a legal entity in its own right. The foundation is responsible for investing and pursues a conservative investment strategy within prescribed margins.

GfK SE accounted for € 50,519 thousand (2015: € 46,985 thousand) of the defined benefit obligation and € 284 thousand (2015: € 262 thousand) of plan assets. The benefit obligation is largely based on individual commitments to senior executives. The form of these commitments is explained in detail in the remuneration report, which is part of the Group Management Report.

GfK does not see any unusual company or plan-specific risks for either type of plan, or any significant risk concentration arising from these pension plans.

The movement in the defined benefit obligation (DBO) during the period under review is shown in the table below.

2015 2016
Present value of defined benefit obligation as at January. 1 133,125 137,239
Current service cost 5,076 4,701
Interest cost 2,291 2,030
Participant contributions 1,592 1,503
Actuarial gains and losses from demographic assumptions – 116 941
Actuarial gains and losses from financial assumptions 1,750 6,194
Actuarial gains and losses from experience-related assumptions – 2,037 2,103
Exchange rate changes 8,334 905
Benefits paid – 10,222 – 7,573
Reclassification as liabilities held for sale – 2,544 0
Past service cost – 28 30
Business combinations 194 0
Plan reductions – 202 – 81
Plan settlements 26 17
Present value of defined benefit obligation as at December 31 137,239 148,009

The following sensitivity analysis helps to approximately quantify the risk that can arise under certain assumed conditions if specific parameters change. The table provides an overview of how a change in the relevant actuarial assumptions would affect the present value of the defined benefit obligation while all other factors remain constant. The table below is based on the present value of the defined benefit obligation. The prior year’s figures did not take into account reclassification as liabilities held for sale.

2015 2016
Present value of defined benefit obligation as at December 31 139,783 148,009
Present value of defined benefit obligation if the discount rate was
0.5 percentage points higher 131,295 139,125
0.5 percentage points lower 149,460 158,104
the salary increase rate was
0.1 percentage point higher 139,964 148,155
0.1 percentage point lower 139,602 147,865
the pension increase rate was
0.1 percentage point higher 140,804 149,628
0.1 percentage point lower 138,772 146,421

The table below shows the development of plan assets.

2015 2016
Fair value of plan assets as at January 1 68,834 70,903
Expected return on plan assets 869 574
Actuarial gains and losses – 1,320 3,484
Exchange rate changes 7,554 696
Employer contributions 2,693 2,430
Participant contributions 1,592 1,503
Benefits paid – 7,239 – 5,089
Reclassification as liabilities held for sale – 2,080 0
Fair value of plan assets as at December 31 70,903 74,501

The exchange rate changes shown in the tables mainly reflect the appreciation of the Swiss franc. 

In the next two tables, the fair value of the plan assets is split into various asset classes that distinguish the nature and risks of those assets. There is a further split into assets for which a quoted market price in an active market is available and assets for which this is not the case.

2015
Market price in an active market No market price in an active market Total
Cash and cash equivalents 702 0 702
Equity instruments 20,360 0 20,360
Debt instruments 28,083 0 28,083
Real estate 3,510 11,935 15,445
Investment funds 262 0 262
Insurance contracts 0 42 42
Miscellaneous 5,617 392 6,009
Fair value of plan assets as at December 31 58,534 12,369 70,903

2016
Market price in an active market No market price in an active market Total
Cash and cash equivalents 2,728 0 2,728
Equity instruments 22,115 0 22,115
Debt instruments 27,202 0 27,202
Real estate 6,146 10,293 16,439
Investment funds 284 0 284
Insurance contracts 0 56 56
Miscellaneous 5,677 0 5,677
Fair value of plan assets as at December 31 64,152 10,349 74,501

The actual results from the plan assets amounted to € 4,050 thousand in the year under review
€ – 391 thousand).

According to GfK estimates, contributions of around € 2,341 thousand (2015: € 2,526 thousand) will be payable into pension plans for Germany and Switzerland in the coming year. For the following year, GfK expects pension payments of € 3,916 thousand (2015: € 3,758 thousand). The weighted duration of the defined benefit obligation is 14 years, which is the same as in the prior year.

The amounts reported in the consolidated income statement break down as follows:

2015 2016
Service cost 5,076 4,701
Interest cost 2,291 2,030
Expected return on plan assets – 869 – 574
Past service cost – 28 30
Gains and losses from the curtailment or discontinuation of pension plans – 176 – 64
Pension expenses/return (–) 6,294 6,123

Long-term other provisions

The development of long-term other provisions during the period under review is shown in the table below:

Personnel Potential contractual losses Authorities and insurance companies Legal, consulting and lawsuits Other Total
As at January 1, 2016 9,529 1,915 2,407 275 94 14,220
Exchange rate changes 2 83 295 – 40 3 343
Write-ups to discounted provisions 142 73 0 10 0 225
Additions 7,891 1,995 4,240 408 322 14,856
Reclassification – 2,541 – 587 0 – 10 0 – 3,138
Utilization – 258 0 – 19 – 36 0 – 313
Release – 238 – 683 – 174 0 0 – 1,095
As at December 31, 2016 14,527 2,796 6,749 607 419 25,098

Personnel provisions of € 8,491 thousand (2015: € 5,235 thousand) mainly relate to long-term incentive plans. They also include commitments relating to employees leaving and provisions for anniversary expenses based on contractual agreements.

Provisions in connection with authorities and insurance companies predominantly comprise commitments to social insurance providers.

26.2 Short-term Provisions     

The development of short-term provisions during the year under review is shown in the table below:

Personnel Potential contractual losses Authorities and insurance companies Legal, consulting and lawsuits Other Total
As at January 1, 2016 6,890 1,439 5,832 2,341 756 17,258
Exchange rate changes 77 – 83 – 203 71 0 – 138
Changes in the scope of consolidation 32 0 0 0 0 32
Additions 5,010 133 2,750 14,849 896 23,638
Reclassification 2,541 587 – 490 501 0 3,139
Utilization – 3,691 – 804 – 1,543 – 1,126 – 520 – 7,684
Release – 1,474 – 27 – 855 – 789 – 218 – 3,363
As at December 31, 2016 9,385 1,245 5,491 15,847 914 32,882

Personnel provisions of € 3,373 thousand (2015: € 3,792 thousand) relate to long-term incentive plans. They also include commitments relating to employees leaving and provisions for anniversary expenses based on contractual agreements.

Short-term provisions include provisions of € 1,647 thousand (2015: € 3,246 thousand) for anticipated payments in connection with irregularities at GfK Arastirma Hizmetleri A.S., Istanbul, Turkey. They are divided into the categories of “Legal, consulting and lawsuits” and “Authorities and insurance companies.”

Furthermore, the category “Legal, consulting and lawsuits” includes risk provisions of € 9,621 thousand (2015: € 0 thousand) for Media Measurement business. In addition, this category comprises consulting fees in connection with the shareholder structure amounting to € 5,250 thousand (2015: € 0 thousand).


27. Interest-Bearing Financial Liabilities     

The breakdown of financial liabilities is shown in the tables below:

Dec. 31, 2015 Remaining term
Total Up to 1 year More than 1 year Of which between 1 and 5 years Of which more than 5 years
Amounts due to banks 250,086 1,136 248,950 188,996 59,954
Liabilities under finance leases 98 32 66 66 0
Liabilities from bonds 185,970 185,970 0 0 0
Other financial liabilities 28,377 21,031 7,346 7,293 53
Interest-bearing financial liabilities 464,531 208,169 256,362 196,355 60,007

Dec. 31, 2016 Remaining term
Total Up to 1 year More than 1 year Of which between 1 and 5 years Of which more than 5 years
Amounts due to banks 448,397 363 448,034 297,101 150,933
Liabilities under finance leases 167 47 120 120 0
Liabilities from bonds 0 0 0 0 0
Other financial liabilities 34,631 31,781 2,850 2,795 55
Interest-bearing financial liabilities 483,195 31,191 451,004 300,016 150,988

The amounts due to banks with a remaining term of more than five years relate to several loan notes with a total volume of € 151 million, of which € 57 million are due in 2022, € 74 million in 2023, € 13 million in 2026 and € 8 million in 2028.

In April 2016, GfK SE repaid the remaining volume of the bonds amounting to € 186 million in full.

Other financial liabilities include loan liabilities of € 25,250 thousand (2015: € 21,395 thousand) and purchase price-liabilities for the acquisition of participations under put options and earn-out agreements amounting to € 8,513 thousand (2015: € 6,908 thousand), which depend on future events.

As at December 31, 2016, the weighted average interest rates for amounts due to banks was 1.50 percent after interest rate hedging (2015: 1.86 percent).

The financial liabilities are due in the next five years and thereafter, as shown in the table below:

Dec. 31, 2015 Dec. 31, 2016
Within 1 year 1) 208,169 32,191
1 to 2 years 5,510 59,061
2 to 3 years 43,379 55,590
3 to 4 years 40,491 105,939
4 to 5 years 106,975 79,426
More than 5 years 60,007 150,988
Interest-bearing financial liabilities 464,531 483,195

1) Includes current account liabilities payable on demand in the context of credit lines.

As in the prior year, no collateral is in place for amounts due to banks and liabilities under leases totaling € 448,564 thousand (2015: € 250,184 thousand).


28. Other Liabilities and Deferred Items

The non-current and current items relating to other liabilities and deferred items are divided into financial and non-financial other liabilities and deferred items as follows:

Dec. 31, 2015 Dec. 31, 2016
Financial non-current other liabilities and deferred items 10,016 8,954
Non-financial non-current other liabilities and deferred items 7,403 10,427
Non-current other liabilities and deferred items 17,419 19,381
Financial current other liabilities and deferred items 50,241 53,317
Non-financial current other liabilities and deferred items 126,394 131,067
Current other liabilities and deferred items 176,635 184,384

The breakdown of the item “Financial other liabilities and deferred items” is as follows:

Dec. 31, 2015 Dec. 31, 2016
Financial non-current other liabilities and deferred items with a remaining term of more than 1 year
Non-derivatives:
Liabilities relating to rent 5,867 5,802
Financial other liabilities from operating activities 1,720 1,779
Liabilities related to sale of real estate 1,431 0
Liabilities from compensation claims, legal liabilities and penalties 646 439
Liabilities to other related parties 10 318
Miscellaneous financial non-current other liabilities and deferred items 0 61
Subtotal: non-derivatives 9,674 8,399
Derivatives:
Derivative financial instruments (not used as hedges) 170 333
Derivative financial instruments (used as hedges) 172 222
Subtotal: derivatives 342 555
Financial non-current other liabilities and deferred items 10,016 8,954
Financial current other liabilities and deferred items with a remaining term of up to 1 year
Non-derivatives:
Financial other liabilities from operating activities 27,330 27,572
Financial other liabilities from non-operating activities 8,217 8,630
Liabilities relating to rent 3,210 4,090
Interest liabilities 10,087 4,307
Liabilities from business combinations not yet due 0 3,515
Liabilities from the sale of real estate 0 1,443
Liabilities from repayment obligations 7 270
Liabilities to other related parties 224 195
Miscellaneous financial current other liabilities and deferred items 98 182
Subtotal: non-derivatives 49,173 50,204
Derivatives:
Derivative financial instruments (not used as hedges) 1,068 3,068
Derivative financial instruments (used as hedges) 0 45
Subtotal: derivatives 1,068 3,113
Financial current other liabilities and deferred items 50,241 53,317
TOTAL: FINANCIAL OTHER LIABILITIES AND DEFERRED ITEMS 60,257 62,271
of which non-derivatives 58,847 58,603
of which derivatives 1,410 3,668

Financial current other liabilities from operating activities essentially comprise amounts owed to households and respondents (€ 14,506 thousand, 2015: € 10,904 thousand), clients (€ 3,937 thousand, 2015: € 5,164 thousand), interviewers (€ 3,116 thousand, 2015: € 3,488 thousand) and suppliers (€ 2,738 thousand, 2015: € 3,312 thousand).

Financial current other liabilities from non-operating activities mainly include liabilities for external year-end closing costs (€ 3,167 thousand, 2015: € 2,933 thousand) as well as legal and consultancy fees (€ 2,948 thousand, 2015: € 2,776 thousand).

Financial other liabilities to other related parties exist, in particular, towards minority shareholders in GfK subsidiaries.

The breakdown of the item “Non-financial other liabilities and deferred items” is as follows:

Dec. 31, 2015 Dec. 31, 2016
Non-financial non-current other liabilities and deferred items with a remaining term of more than 1 year
Deferred items 4,253 3,832
Liabilities to employees 3,122 3,778
Income tax liabilities 0 2,765
Miscellaneous non-financial non-current other liabilities and deferred items 28 52
Non-financial non-current other liabilities and deferred items 7,403 10,427
Non-financial current other liabilities and deferred items with a remaining term of up to 1 year
Liabilities to employees 95,777 92,073
Liabilities from other taxes 28,988 36,698
Deferred items 1,314 1,520
Miscellaneous non-financial current other liabilities and deferred items 315 776
Non-financial current other liabilities and deferred items 126,394 131,067
TOTAL: NON-FINANCIAL OTHER LIABILITIES AND DEFERRED ITEMS 133,797 141,494

Non-financial current liabilities to employees mainly comprise liabilities for the payment of bonuses (€ 44,802 thousand, 2015: € 48,826 thousand), liabilities arising from social security (€ 13,640 thousand, 2015: € 13,348 thousand) and liabilities related to vacation entitlements (€ 13,514 thousand, 2015: € 13,072 thousand).


29. Financial instruments

The following tables list the carrying values, recognition and measurement in the balance sheet and fair values of all financial instruments held by the GfK Group, in accordance with the valuation categories of IAS 39.

IAS 39 valuation category Carrying value as at Dec. 31, 2015 Recognition and measurement in the balance sheet according to IAS 39 IAS 17 balance sheet basis Fair value as at Dec. 31, 2015
Amortized costs Acquisition costs Fair value recognized directly in equity Fair value through profit or loss
ASSETS
Other financial assets
Shares in affiliated companies Financial assets available for sale 2,930 2,930 2,930
Other participations Financial assets available for sale 970 970 970
Loans to affiliated companies Loans and receivables 1,001 1,001 1,001
Loans to associates Loans and receivables 156 156 156
Other loans Loans and receivables 551 551 551
Other available-for-sale securities Financial assets available for sale 2 2 2
Long-term fixed-term deposits Loans and receivables 3 3 3
Trade receivables Loans and receivables 396,257 396,257 396,257
Short-term securities and fixed-term deposits Loans and receivables 1,456 1,456 1,456
Financial other assets and deferred items