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Group Management Report

 

2. Economic report

2.1 Voluntary public takeover offer by Acceleratio Capital N.V.

Acceleratio Capital N.V., a holding company headquartered in Amsterdam, the Netherlands, controlled by funds advised by Kohlberg Kravis Roberts & Co. L.P. (KKR), published a bid document for a voluntary public takeover offer (cash offer) on December 21, 2016 for all shares in GfK SE not held by Accelera- tio Capital N.V. at a price of €43.50 per share in cash. According to Acceleratio Capital N.V., the offer represents a premium of about 44 percent, based on the estimated volume-weighted price during the last three months prior to the announcement of the offer. The takeover offer was subject to various offer conditions detailed in the offer document, including the achievement of a minimum acceptance condition of 18.54 percent of GfK shares outstanding. The completion of the transaction was also subject to approval by the competition and investment control authori- ties named in the offer document.

The GfK Verein states that it will not tender any shares and will therefore remain the majority shareholder of GfK with a share of 56.46 percent.

On December 30, 2016, the Management Board and Supervisory Board published a joint statement on the takeover offer pursuant to Section 27 Para. 1 of the German Securities Acquisition and Takeover Act (WpÜG), on which they had agreed independently of each other on December 29, 2016; this statement can be viewed online under: www.gfk.com/investors/takeover-offer/. Following an extensive review process, the Management and Supervisory Boards recommended in the statement that the shareholders accept the offer. A detailed justification for this recommendation was provided in the statement. It is hereby expressly stated that the joint statement issued by the Management Board and Supervisory Board alone is decisive for the assessment of the offer document and that the information in this Group Management Report contains no further explanations or additions to the remarks in this statement.

With a view to the takeover offer, GfK SE and Acceleratio Capital N.V. had previously conducted extensive negotiations and subsequently signed an investor agreement on December 8, 2016. This agreement presented all major points of the takeover offer, especially the mutual understanding with respect to the takeover offer and its realization, as well as the future organization of the business operations of GfK SE. In particular, the investor agreement stipulates the conditions under which the Management Board and the Supervisory Board have declared their willingness, in principle, to support the offer. In regard to the content of the investor agreement, please refer to the published announcement by the Supervisory Board and Management Board on the takeover offer, which includes a summary of the essential provisions included in the investor agreement.

Acceleratio Capital N.V. announced that during the acceptance period, which started with the publication of the takeover offer document on December 21, 2016 and expired on February 10, 2017, 24:00 hours (local time Frankfurt am Main) and 6:00 pm (local time New York), a total of 7,052,242 GfK shares, which represents 19.3191 percent of GfK SE’s share capital, were accepted for sale. This means that the minimum acceptance rate of 18.54 percent stipulated in the offer document as a condition to the takeover offer was met. Acceleratio Capital N.V. additionally announced that during the subsequent acceptance period, starting on February 16, 2017 and ending on March 1, 2017, 24:00 hours (local time Frankfurt am Main) and 6:00 pm (local time New York), a further 2,470 GfK shares (totaling an additional 0.01 percent of the share capital) were accepted for sale. According to Acceleratio Capital N.V.'s own data, as of the expiry of the additional acceptance period voting rights attached to 1,158,665 GfK shares are attributed to the bidder pursuant to section 30 para. 1 sentence 1 no. 5 WpÜG. This corresponds to approximately 3.17 percent of the share capital and the voting rights of GfK SE. In addition, as of the expiry of the additional acceptance period, pursuant to section 30 para. 1 sentence 1 no. 5 WpÜG, voting rights attached to 2,516,725 GfK shares are attributed to Acceleratio Topco S.à r.l., a person acting jointly with the bidder pursuant to section 2 para. 5 WpÜG. This corresponds to approximately 6.89 percent of the share capital and the voting rights of GfK SE. In total, Acceleratio Capital N.V. was therefore offered 10,730,102 GfK shares (approximately 29.39 percent) within the scope of its takeover offer or are attributed to itself or a person acting jointly with the bidder pursuant to section 2 para. 5 WpÜG. 

All completion conditions the takeover offer was subject to are satisfied.

2.2. Introduction

GfK’s matrix organization consists of two globally responsible sectors (see chapter 2.8) with product responsibility as well as six regions tasked with managing local business. This structure facilitates the integration of a global product range with excellent services offered to global clients. Beyond this, it also enables both sectors to fully exploit the potential offered by regional markets.

The GfK Group prepares its consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU. The financial data for the sectors and regions originates from our Management Information System.

For the internal management of both sectors, GfK applies the financial key performance indicators of sales and adjusted operating income (AOI) / margin. The outlook of AOI was projected according to the accounting principles used in the financial statements and the adjustments described elsewhere in the group management report. The reconciliation of operating income to AOI is shown in the table below. This is also used as an indicator of income by some competitors.

GfK is confident that the explanations regarding business performance using adjusted operating income will facilitate the interpretation of the GfK Group’s business development and enhance the informative value in comparison with other major companies operating in the market research industry. Accordingly, where income is mentioned below, this is the adjusted operating income. The margin is the ratio of adjusted operating income to sales.

The development of the order position in relation to the expected annual sales for the current financial year is another important financial indicator. This statistic, referred to as the level of sales coverage, is determined on a monthly basis and is closely monitored by GfK’s management. In general, half the planned annual sales are already reported as assured contracts in the first quarter.

However, a more differentiated picture emerges between the two sectors. In the panel-based Consumer Choices sector, contracts are largely renewed during the first three months of the fiscal year. Nevertheless, in some cases, contracts in this sector may provide for surveying on a continuous basis for several years. As a result of the greater weighting of ad hoc studies in the Consumer Experiences sector and the lower proportion of continuous data collection, incoming orders for this sector tend to be more evenly spread over the year as a whole. The adjusted operating income is calculated as follows:

RECONCILIATION OF ADJUSTED OPERATING INCOME 1)

in € million 2015 2016 Change in percent
Operating income 104.2 – 55.2
Goodwill impairment 39.4 136.9 + 247.4
Write-ups/write-downs of additional assets identified on acquisitions
Scheduled amortization/depreciation 4.9 5.1 + 4.5
Impairments 3.4 12.4 + 263.9
Reversal of impairments – 4.0 – 1.0 – 74.6
Income and expenses in connection with share and asset deals – 8.7 4.7
Income and expenses in connection with reorganization and improvement projects 22.8 22.1 – 3.0
Personnel expenses for share-based incentive payments 1.9 7.4 + 288.1
Currency conversion differences 2.2 – 0.3
Expenses from litigation, compliance cases and terminated projects 22.9 16.9 – 26.5
Remaining highlighted items – 1.5 6.4
Total highlighted items 83.4 210.5 + 152.3
Adjusted operating income 187.6 155.3 – 17.2

1) Rounding differences may occur

Where statements below refer to the numbers of employees, in principle, this represents the total number of full-time posts. For this purpose, part-time posts have been converted to equate full-time employment.

The figures on the business development of the GfK Group and any percentage changes are based on figures in € thousand. Accordingly, rounding differences may occur.

As part of its global strategy, GfK has pooled overlapping administrative functional areas of the Other category.

The companies mentioned in the Group Management Report are referred to by their abbreviated names. The Additional Information section of the Annual Report includes a list of all companies in the GfK Group.

2.3. GfK Group: Challenges not yet resolved

In 2016, the GfK Group achieved sales of €1,483.8 million. Sales were down by €59.6 million, or 3.9 percent, versus the prior year. The decline was exacerbated by negative currency effects (‑1.6 percent) as well as by the loss of sales following the divestment of unprofitable subsidiaries, which net of acquisition-related growth resulted in a decrease of 0.5 percent. The organic decline in sales therefore accounted for -1.7 percent.

DEVELOPMENT OF EARNINGS 1)

2015 2016 Change
in € million 2015 excluding goodwill-impairment 2016 excluding goodwill-impairment (excluding goodwill-impairment) in percent
Sales 1,543.4 1,543.4 1,483.8 1,483.8 – 3.9
Cost of sales – 1,061.9 – 1,061.9 – 1,059.1 – 1,059.1 – 0.3
Gross income from sales 481.5 481.5 424.7 424.7 – 11.8
Selling and general administrative expenses – 302.2 – 302.2 – 296.5 – 296.5 – 1.9
Other operating income 19.8 19.8 16.4 16.4 – 17.3
Other operating expenses – 94.9 – 55.5 – 199.9 – 62.9 + 13.4
EBITDA 231.2 231.2 183.1 183.1 – 20.8
as a percentage of sales 15.0 15.0 12.3 12.3
Adjusted operating income 187.6 187.6 155.3 155.3 – 17.2
as a percentage of sales 12.2 12.2 10.5 10.5
Highlighted items – 83.4 – 44.0 – 210.5 – 73.6 + 67.2
Operating income 104.2 143.6 – 55.2 81.7 – 43.1
as a percentage of sales 6.7 9.3 – 3.7 5.5
Income from participations 2.0 2.0 5.2 5.2 + 157.2
EBIT 106.2 145.6 – 50.1 86.9 – 40.3
as a percentage of sales 6.9 9.4 – 3.4 5.9
Other financial income – 18.3 – 18.3 – 12.7 – 12.7 – 30.6
Income from ongoing business activity 87.9 127.3 – 62.8 74.2 – 41.7
Tax on income from ongoing business activity – 47.2 – 47.2 – 73.7 – 73.7 + 56.3
Tax ratio in percent 53.7 37.0 – 117.5 99.3
Consolidated total income 40.7 80.1 – 136.5 0.5 – 99.4
Attributable to equity holders of the parent 36.8 76.2 – 140.6 – 3.6
Attributable to minority interests 4.0 4.0 4.1 4.1 + 3.5
Consolidated total income 40.7 80.1 – 136.5 0.5 – 99.4
Earnings per share (undiluted) in € 1.01 2.09 – 3.85 – 0.10

1) Rounding differences may occur

The cost of sales amounted to €1,059.1 million, down 0.3 percent versus the prior year’s figure. Development costs of €27.8 million (2015: €39.0 million) were capitalized and therefore exempted from this figure. However, research and development costs, up by €4.2 million to €21.3 million, are included in the cost of sales. Gross income from sales declined as a result by 11.8 percent to stand at €424.7 million.

Selling and general administrative expenses posted a decrease of 1.9 percent to €296.5 million. Operating expenses, which comprise the cost of sales and selling and administrative expenses, were down by 0.6 percent, substantially less than the decline in sales.

Personnel expenses account for more than half of the operating expenses and amounted to €762.6 million. This equates to a decline of 0.4 percent year on year. At the same time, the workforce reduced by 3.1 percent, or 416 employees, to 13,069 employees at year-end 2016. Naturally there is a time delay before this development impacts personnel expenses. Since the decrease in personnel expenses is smaller than that in sales, the personnel cost ratio, which represents the relationship of personnel expenses to sales, stood at 51.4 percent (prior year: 49.6 percent).

Adjusted operating income declined by €32.3 million, or 17.2 percent, to €155.3 million. The margin, which expresses the relationship of adjusted operating income to sales, amounted to 10.5 percent (prior year: 12.2 percent).

Other operating income declined by €3.4 million to €16.4 million. In the prior year, this item included income of €12.0 million in connection with the divestment of minority shareholdings resulting from the unwinding of cross-ownership with the NPD Group, Inc., USA. In the reporting year, income of €1.3 million arose from divestment of the Print Center in Switzerland and the shareholding in the associated company USEEDS GmbH, Berlin. The divestment of the market research business in Crop Protection and Animal Health generated a deconsolidation profit of €5.1 million. Currency gains increased from €2.3 million in the prior year to €4.5 million.

As currency losses in other operating expenses decreased by €0.4 million to €4.2 million, net currency gains from operating activities in foreign currency stand at €0.3 million (prior year: net currency losses of €2.2 million).

Overall, there was a considerable rise in other operating expenses, up from €94.9 million in the prior year to €199.9 million in 2016. This figure includes a goodwill impairment of €136.9 million (prior year: €39.4 million). The impairment was due to lower growth prospects for the Consumer Experiences sector, which led to impairments in all regions apart from Central Eastern Europe/META. Adjusted for this influence, other operating expenses would have amounted to €62.9 million, a rise of €7.4 million year on year.

In 2016, there were delays in some projects in the Media Measurement business and the need for renegotiations. Provisions were recognized to provide for possible risks, leading to other operating expenses of €13.6 million. Personnel expenses within other expenses increased by €6.5 million to €21.1 million. These are primarily related to severance payments in connection with reorganization projects. The planned changes in the shareholder structure resulted in expenses of €6.2 million. A deconsolidation loss of €4.4 million was incurred on the divestment of the unprofitable subsidiary Genius Digital in the UK. This was countered by the absence of impairments of network-based development activities which had amounted to €20.0 million in the prior year. In addition, expenses relating to irregularities at a Turkish subsidiary, which were discovered in 2012, declined by €1.3 million and stood at less than €0.1 million in the reporting year.

Highlighted items totaled €210.5 million. Adjusted for goodwill impairment, highlighted items would have amounted to €73.6 million, which equates to a rise of €29.6 million, compared with a figure of €44.0 million in the prior year (similarly adjusted for goodwill impairment).

The revised growth outlook in the Consumer Experiences sector, which resulted in the goodwill impairment, contributed significantly to a rise in impairments of additional assets identified on acquisitions of €9.0 million to €12.4 million. At the same time, reversals of impairments decreased from €4.0 million in the prior year to €1.0 million. Overall, net expenses in this item increased by €12.2 million and it stood at €16.5 million in 2016.

Income and expenses in connection with share and asset deals also contributed to the increase in highlighted items. After net income of €8.7 million in the prior year, net expenses of €4.7 million were recorded, which corresponds to a change of €-13.3 million. The divestment of minority interests to NPD, USA, referred to above, generated one-off income of €12.0 million in 2015. In the reporting year, this item includes both the gain on deconsolidation of business activities in Crop Protection and Animal Health of €5.1 million as well as the deconsolidation loss on the sale of Genius Digital in the UK amounting to €4.4 million. Further expenses of €3.2 million (prior year: €0.3 million) relate to the acquisition of the international Netquest Group, which is headquartered in Spain.

At €22.1 million, income and expenses from reorganization and optimization projects are slightly below the prior year’s figure. Essentially these include severance payments, impairments, consulting costs and other costs from streamlining and optimizing business areas at selected subsidiaries.

Personnel expenses for share-based incentive payments climbed €5.5 million to €7.4 million. This development was mainly due to two factors, which were the departure of a member of the Management Board and the rise in GfK’s share price at the year-end as a result of the public takeover bid from Acceleratio Capital N.V., headquartered in Amsterdam, Netherlands.

In the prior year, net income from currency conversion was negative at €2.2 million. In 2016, the net figure was positive with income of €0.3 million. The improvement was primarily due to the movement in exchange rates for the US dollar, pound sterling and Japanese yen.

For reasons of transparency, expenses from litigation, compliance cases and terminated projects were aggregated in a separate highlighted item in the reporting year. Together with remaining highlighted items, these had previously been reported in income and expenses related to one-off effects and other exceptional circumstances. The newly created item declined from €22.9 million in the prior year to €16.9 million. In the prior year, this item was dominated by impairments of developments in Mobile Insight/Location Insight and part of the CPIMS/NEO software amounting to €20.0 million. In the reporting year, the reported figure mainly includes the risk provisioning for Media Measurement business amounting to €13.6 million and the provision for labor court proceedings and the resulting social security risks of €2.1 million (prior year: €0.2 million).

In the prior year, remaining highlighted items posted net income of €1.5 million, partly as a result of income of €1.1 million from a property divestment in Switzerland. In the reporting year, expenses for changes in the shareholder structure of €6.2 million in particular led to net expenses totaling €6.4 million.

Operating income decreased by €159.4 million to €-55.2 million. Adjusted for goodwill impairment, the figure would have amounted to €81.7 million, compared with the similarly adjusted figure of €143.6 million in the prior year. This would equate to a decline of 43.1 percent.

Net write-downs climbed €108.1 million to €233.1 million. Excluding the increase in the goodwill impairment of €97.5 million to €136.9 million, this item would have been up year on year by €10.6 million at €96.2 million. The increase stems almost exclusively from the rise in scheduled amortization and depreciation of €9.0 million, which predominantly related to intangible assets such as software and panels, but also affected tangible assets. This development was expected after increased investment in such assets in prior years. Despite the €9.0 million increase in impairments of additional assets identified on acquisitions, impairments within amortization and depreciation declined by a total of €1.4 million, since in the prior year this item included the one-off impairment of €20.0 million relating to network-based development activities. The rest of the increase is due to the €3.0 million decline in reversals of impairments.

Income from participations improved from €2.0 million in the prior year to €5.2 million. Income from associated companies declined by €1.2 million, primarily as a result of divestment of the associated company NPD Intelect USA in connection with the unwinding of the cross-ownership in the prior year. Other income from participations increased by €4.3 million and includes profit from the divestment of the minority holding in Qosmos France amounting to €5.8 million.

After a decrease of €156.2 million, EBIT stood at €-50.1 million in the reporting year. Adjusted for goodwill impairment in both the year under review and 2015, EBIT would amount to €86.9 million, corresponding to a decline of 40.3 percent. EBITDA, which is unaffected by the mainly goodwill-related rise in write-downs, declined by 20.8 percent, or €48.2 million, to €183.1 million.

Other financial income improved by €5.6 million year on year. Net expenses amounted to €12.7 million compared with €18.3 million in the prior year. Net interest expenses declined by €4.1 million to €12.4 million following the bond repayment and favorable refinancing; financial currency conversion differences improved by €3.5 million to net income of €1.1 million. Miscellaneous other financial income dropped by €2.1 million with reported net expenses of €1.4 million.

Income from ongoing business activity decreased from €87.9 million to €-62.8 million. Adjusted for goodwill impairment, the figure would be €74.2 million with a decline of €53.1 million or 41.7 percent.

The arithmetical income tax rate amounted to -117.5 percent (prior year: 53.7 percent). Both rates are influenced to a significant extent by the respective goodwill impairment, as this reduction in pre-tax profit at Group level has no impact on tax expenses. The adjusted tax rates stand at 99.3 percent in 2016 and 37.0 percent in 2015.

Higher tax expenses in the current year are particularly attributable to additional taxes for prior years as a result of a tax audit for the years 2008 to 2012 in Germany, reassessment of the future realization of tax loss carry-forwards in the Group and higher burdens from expenses which are not tax-deductible and withholding taxes not creditable.

The consolidated total income of the GfK Group amounted to €-136.5 million compared with €40.7 million in the prior year. Excluding the impact of goodwill impairment in both years, consolidated total income would have amounted to €0.5 million, corresponding to a decline of €79.7 million. The consolidated total income attributable to minority interests, which is unaffected by goodwill impairment, stood at €4.1 million. Consequently, the consolidated total income attributable to equity holders of the parent company is negative at €-3.6 million. As a result, earnings per share, also after adjustment for goodwill impairment, were slightly negative, with the adjusted figure standing at €-0.10 compared with the adjusted figure of €2.09 in the prior year (unadjusted: €-3.85, prior year €1.01).

2.4. Asset and capital position

In comparison with the prior year, the total assets of the GfK Group declined by €121.4 million, or 6.6 percent, to €1,720.9 million. The main reason for the decrease is the goodwill impairment, which reduced the goodwill and equity reported in the balance sheet by €137.0 million.

DEVELOPMENT OF THE BALANCE SHEET  1)

in € million Dec. 31, 2015 Dec. 31, 2016 Change Share of total assets in percent
ASSETS
Non-current assets 1,221.7 1,065.5 – 156.2 61.9
Current assets 620.6 655.4 + 34.8 38.1
LIABILITIES
Equity 720.5 538.2 – 182.3 31.3
Non-current liabilities 440.7 665.8 + 225.1 38.7
Current liabilities 681,1 516.9 – 164.2 30.0
Total assets 1,842.3 1,720.9 – 121.4 100.0

1) Rounding differences may occur

 

Other intangible assets rose by €9.6 million to €281.4 million. Most of this increase was attributable to the setup of market research panels and development of software, especially in Germany and the USA. In total, other intangible assets comprise panels with a book value of €122.8 million and software with a book value of €113.8 million.

Tangible assets decreased by €12.8 million to €92.5 million. One Swiss property with a book value of €2.3 million was reclassified to assets held for sale as the divestment is to be carried out in 2017. The rest of the decrease stemmed primarily from scheduled depreciation of fixtures and fittings which exceeded the figure for new additions.

In total, non-current assets declined by €156.2 million to €1,065.5 million. By contrast, current assets were up €34.8 million to €655.4 million as of the reporting date. Trade receivables and income tax receivables together accounted for €26.1 million of this increase; cash and cash equivalents rose by €44.2 million. These were countered by the reduction in assets held for sale of €37.1 million to €2.3 million, which in the reporting year related to a property in Switzerland as indicated above. In the prior year, this item included the planned sale of business activities in Crop Protection and Animal Health, the Print Center in Switzerland and the stake in USEEDS GmbH in Berlin. All three divestments were carried out in 2016.

Equity declined by €182.3 million to €538.2 million. As a result, the equity ratio dropped from 39.1 percent in the prior year to 31.3 percent. Consolidated total income, which was negative due to goodwill impairment, and the dividend distribution of €23.7 million adversely affected retained earnings. In addition, the movement in the value of pound sterling in particular led to a decrease in the currency reserve reported in other reserves of €14.0 million.

Liabilities increased by €60.9 million to €1,182.7 million. The increase comprises the rise in non-current liabilities of €225.1 million to €665.8 million and the decline in current liabilities of €164.2 million to €516.9 million.

This is mainly due to the shift between current financial liabilities (decrease of €176.0 million to €32.2 million) and non-current financial liabilities, which rose by €194.6 million to €451.0 million. In April 2016, the €186.1 million bond was repaid as planned and most of this sum refinanced long-term. Provisions included in non-current liabilities also increased by €18.1 million. These largely referred to personnel-related obligations.

The decrease in current liabilities of €164.2 million stems primarily from the bond repayment referred to above. In contrast, current provisions increased by €15.6 million mainly due to risk provisioning for the Media Measurement business.

2.5. Investment and finance

For an innovative market research company like GfK, ongoing investment in the establishment and expansion of panels, new measuring techniques and technology and the necessary new market research methods for these, as well as the expansion of production and analysis systems, is vital. These measures make a decisive contribution to securing the Group‘s future success, since they considerably raise the barrier to market entry for potential competitors and substantially strengthen the competitive position of GfK.

Accordingly, the GfK Group made significant investments in 2016. These amounted to €102.1 million and were therefore somewhat below the prior year’s level (€-6.5 million). Investment in setting up panels and in tangible assets, which was unusually high in the prior year due to the rollout of new Media Measurement panels in various countries, declined by €8.2 million and €8.5 million respectively. Investment in software also decreased (€-5.9 million). Investment in acquisition activity was up versus the prior year by €18.3 million to €30.8 million and is due to the takeover of the Netquest Group.

Cash flow from operating activity declined by €24.7 million year on year to €146.2 million, mainly as a result of the considerable decline in consolidated total income of €79.7 million excluding goodwill impairment. As a result of the improvement in cash outflows from working capital from €21.0 million in the prior year to €13.0 million in the reporting year and elimination of non-cash components of consolidated total income such as additions to risk provisions, currency and tax effects, the decline in cash flow from operating activity was much more moderate than that in consolidated total income.

Taking account of investments in intangible and tangible assets amounting to €71.0 million (prior year: €94.1 million), free cash flow amounted to €75.2 million, down only €1.6 million versus the prior year. All acquisitions and other financial investments were therefore covered in full.

Dividends of €28.1 million (prior year: €31.7 million) were paid to the shareholders of GfK SE and to the minority shareholders of the subsidiaries. Taking account of net borrowing amounting to €13.2 million (prior year: €47.7 million) and net interest payments of €17.2 million (prior year: €17.9 million), the overall cash flow from financing activity was negative at €32.1 million (prior year: €59.4 million). In total, the cash change in liquid funds amounted to €42.7 million compared with €35.2 million in the prior year.

DEVELOPMENT OF FREE CASH FLOW AND CASH FLOW FROM FINANCING ACTIVITY 1)

in € million 2015 2016 Change
Cash flow from operating activity 170.9 146.2 – 24.7
Investments in intangible and tangible assets – 94.1 – 71.0 – 23.1
Free cash flow before acquisitions, other financial investments and asset disposals 76.8 75.2 – 1.6
Acquisitions – 12.5 – 30.8 – 18.3
Other financial investments – 1.9 – 0.3 + 1.7
Asset disposals 32.3 30.7 – 1.6
Free cash flow after acquisitions, other financial investments and asset disposals 94.6 74.8 – 19.8
Cash changes in equity – 89.2 – 28.1 + 61.0
Net borrowing via loans 47.7 13.2 – 34.5
Interest paid less interest received – 17.9 -– 17.2 + 0.8
Cash flow from financing activity – 59.4 – 32.1 + 27.3
Changes in cash and cash equivalents 35.2 42.7 + 7.5

1) Rounding differences may occur

 

Net debt is defined as the balance of cash, cash equivalents and short-term securities less interest-bearing liabilities and pension obligations. It reduced by €18.3 million in the reporting year to €381.6 million. Refinancing of the bond repaid in April 2016 led to a rise in bank liabilities of €198.3 million. This should be seen in conjunction with the decrease in other interest-bearing liabilities of €179.7 million, which includes repayment of the bond amounting to €186.1 million. Pension obligations also increased by €7.2 million to €73.5 million, primarily as a result of a decline in the discount interest rate. These increases were countered by the rise in cash and cash equivalents of €44.2 million to €173.7 million.

DEVELOPMENT OF NET DEBT 1)

in € million Dec. 31, 2015 Dec. 31, 2016 Change
Cash and cash equivalents 129.5 173.7 + 44.2
Short-term securities and fixed- term deposits 1.5 1.4 – 0.1
Liquid funds and current securities 130.9 175.1 + 44.2
Liabilities to banks 250.1 448.4 + 198.3
Pension obligations 66.4 73.5 + 7.2
Liabilities from finance leases 0.1 0.2 + 0.1
Other interest-bearing liabilities 214.3 34.6 – 179.7
Interest-bearing liabilities 530.9 556.7 + 25.8
Net debt – 400.0 – 381.6 + 18.3

 

The impact of the decline in income and simultaneous reduction in net debt is reflected in the development of ratios of net debt to key balance sheet and financial ratios.

GEARING AND RATIO OF NET DEBT TO EBIT, EBITDA, FREE CASH FLOW

2015 2016
Gearing (net debt /equity) in percent 55.5 70.9
Net debt / EBIT 3.77 – 7.62
Net debt / EBITDA 1.73 2.08
Net debt / free cash flow 5.21 5.07

2.6. Business performance forecast

One of our targets for 2016 was to maintain the high pace of innovation with the aim of further strengthening the company’s position. In structural terms, GfK combined the previously separate operations units to form a single unit at the start of the financial year and in this way ensured a stronger focus as well as generating cost savings. With regard to potential mergers and acquisitions, investments were to be carefully evaluated on a case-by-case basis. In general, our focus remained on organic growth.

Optimistic outlook at the start of the year

In the Consumer Experiences (CE) sector, our focus was on optimizing and streamlining the company’s operations. We predicted that the market environment for ad hoc business would remain challenging in 2016. In light of this, we had expected the CE sector to make a growth contribution at market level and we aimed to further increase efficiency and moderately improve the margin.

New growth and margin potential should be systematically exploited in the Consumer Choices (CC) sector. Our core business, the point of sale measurement, should be expanded further with new product categories, industries and services, as well as through the addition of online evaluation options. In the Media Measurement business, the new panels for measuring TV audiences were expected to make a significant contribution to sales. Our GfK Crossmedia Link product was to be launched in additional countries and evolved into a key digital product. The Management Board assumed that the CC sector would again achieve significant growth and further increase its sales share. For the margin, a considerable improvement against the previous year was projected.

At the start of the year, the Group therefore anticipated modest organic growth for 2016, higher than in the previous year and above the market research industry. The AOI margin (adjusted operating income to sales) was expected to increase considerably.

Guidance correction at mid-year

Following the release of provisional figures for the first half of the year, GfK adjusted its guidance on August 4, 2016. After the first six months of 2016, the company’s income was down on the previous year’s figure for the same reporting period. Preliminary sales for the first half of the year declined by around 1.5 percent in organic terms while the AOI margin declined from 9.5 percent to 8.2 percent. Consequently, the company no longer expected sales growth for 2016 above the market. A significant year-on-year improvement in the AOI margin was also assessed as being unrealistic.

Sales in the Consumer Experiences sector fell short of expectations in the first half of the year due to a weak order intake in traditional ad hoc research. Resource and cost saving measures could not fully offset the resultant decline in adjusted operating income. Owing to this development and the lowered outlook for the Consumer Experiences sector, GfK carried out goodwill impairment amounting to €139 million in the second quarter.

Organic growth was strong in the Consumer Choices sector due to the Point of Sale and Media Measurement business. However, the margin was negatively impacted by delays to a number of growth initiatives in these two business areas. Provisions were therefore made to cover potential risks. In addition, the sector margin was impacted by poor performance in Crop Protection and Animal Health business, which was divested at the end of April.

On August 4, 2016, GfK therefore adjusted its forecast as follows: the company would continue to aggressively drive its transformation initiatives forward and do its utmost to improve results. Depending on the development of incoming orders in the Consumer Experiences sector and progress with the growth initiatives in the Consumer Choices sector, GfK could not rule out that sales growth would be below market level and that the margin would be below the prior year.

Ongoing difficult market situation in the third quarter

The market environment remained challenging for GfK in the third quarter and the outlook was substantiated with the publication of the nine-month figures. New digital services continue to replace traditional staff-intensive offerings in ad hoc research. The need to adjust also remains at a high level. GfK is responding to this trend via a reduction in businesses which cannot hold their own against this kind of competition or which fail to meet margin targets. At the same time, the pace of innovation remained high in 2016 in terms of investment in the development and completion of future-oriented products to put the company in a stronger position for the future. After the Operations structure was set up and tasks were gradually transferred to the Global Service Centers, optimization and cost savings were expected to materialize by the end of the year, depending on the sales trend. The focus continued to be on organic growth.

Sales in the Consumer Experiences sector were below the company’s expectations in the first nine months of the year. This was attributable to a weak order intake for traditional ad hoc research. The resultant decline in adjusted operating income was not offset in full through either resource and cost saving measures or the optimization and streamlining of processes. In view of the sustained challenging market environment in ad hoc business, 2016 was therefore not an easy year for Consumer Experiences. Consequently, GfK expected a significant sales decline for the year as a whole in this sector.

Through its point of sale measurement, Consumer Choices still had a solid core business which has been expanded with new product categories, industries and services as well as being enhanced through online evaluation opportunities. The sector therefore achieved organic growth in the first nine months of the year. The divestment of Crop Protection and Animal Health business in the first half of 2016 continued to have a negative impact, as did the persisting delays in TV research contracts. The Management Board assumed that the sector would again achieve organic growth in 2016 as a whole and consequently further increased its share of sales, relative to Group sales. The trend in the margin was dependent on how quickly the two TV research contracts in Brasil and Kingdom of Saudi Arabia were able to reach their full sales and income potential. Provisions were set up to cover any potential risk.

Restrained outlook for year as a whole

GfK updated the following outlook for 2016 as a whole: the company continued to aggressively drive its transformation initiatives forward and made every effort to improve results. Despite improvements in the order intake of the Consumer Experiences sector in the third quarter and a strong focus on making progress in Media Measurement projects, GfK now forecasted that the prevailing sales trend would be maintained in the fourth quarter of the year as well and that the margin would remain below the previous year’s level.

Fourth quarter: Risks remain and no trend reversal

In a joint reasoned statement on the voluntary public takeover offer of Acceleratio Capital N.V. issued by the Management and Supervisory Boards on December 30, 2016, GfK further substantiated the guidance and evaluated the expected performance of the fourth quarter. In light of the unchanged risk situation, the company concluded that no trend reversal had been achieved in the fourth quarter of the year either. The challenging competitive market situation remained in the Consumer Experiences sector and there were ongoing start-up difficulties with respect to the growth initiatives in the Consumer Choices sector. GfK therefore expected that sales would be down in 2016 against the previous year and assumed a significant year-on-year decline in the AOI margin.

ACTUAL AND PROJECTED BUSINESS PERFORMANCE

Targets for 2016
Group › Moderate organic growth up on the previous year and above the market research industry
› AOI margin expected to improve significatlly
Consumer Experiences › Growth contribution at market level
› Moderate margin increase
Consumer Choices › Considerable sales growth, sales share relative to Group sales to increase
› Margin expected to improve considerably against prior year
Update issued during course of year (August 4, 2016)
Group › Sales development below market level cannot be ruled out
› AOI margin will potentially also be down on the prior year
Consumer Experiences › Sales development dependent on further trend in order intake
› AOI margin governed by further development of order intake, potentially also down on the prior year
Consumer Choices › Sales development contingent on further progress in growth initiatives
› AOI margin influenced by further progress in growth initiatives, will potentially also be down on the prior year
Update issued during course of year (November 14, 2016)
Group › Sales trend of the first three quarters persists in fourth quarter
› AOI margin expected to be down on previous year
Consumer Experiences › Considerable sales decline
› AOI margin unchanged
Consumer Choices › Sales growth, share relative to Group sales expected to increase
› Margin development is dependent on how quickly the two TV research contracts are able to reach their full sales and income potential
Update issued during course of year (December 30, 2016)
Group › Fourth quarter: Risks remain and no improvement on existing trends
› Sales below previous year
› AOI margin expected to deteriorate markedly against prior year
Consumer Experiences › Challenging competitive market situation
Consumer Choices › Ongoing start-up difficulties with respect to the growth initiatives
› Development of Media Measurement contracts in Brazil and the Kingdom of Saudi Arabia critical, one-off effects cannot be excluded

2.7.INFORMATION PURSUANT TO SECTION 315 (4) OF THE GERMAN COMMERCIAL CODE (HGB)

The following information reflect circumstances as at the balance sheet date.

Structure of the Share Capital
The share capital of GfK SE (hereinafter also referred to as the company) amounted to €153,316,363.20 in total as at December 31, 2016, divided into 36,503,896 no-par value bearer shares.

Restrictions on Voting Rights or the Transfer of Shares
There are no restrictions in the Articles of Association relating to voting rights or the transfer of shares.

Direct or Indirect Shareholdings exceeding 10 Percent of the Voting Rights
The GfK-Nürnberg Gesellschaft für Konsum-, Markt- und Absatzforschung e.V., Nuremberg, has a direct holding of 56.46 percent of the voting rights in GfK SE. The company has not received notification of any other shareholders with a stake exceeding 10 percent of the capital.

Shares with Special Control Rights
Shares which confer special control rights have not been issued. All shares carry the same rights.

Control over Voting Rights by Employee Shareholders
The employees with an interest in the capital of the company may exercise their voting rights directly, as other shareholders, in accordance with applicable law and the Articles of Association.

Appointment and Removal of Management and Amendment to the Articles of Association
Pursuant to Section 84 of the German Stock Corporation Act (AktG) and Article 5 of the Articles of Association of GfK SE, the Supervisory Board is responsible for determining the number of members of the Management Board, which consists of at least two members. The Supervisory Board appoints each member of the Management Board for a maximum term of five years. Appointment for one term or several reappointments each for a maximum of five years are permitted. The Supervisory Board may appoint a member of the Management Board as CEO and one or more deputy CEOs. In addition, the legal regulations on appointing and removing members of the Management Board apply (Sections 84 and 85 of the German Stock Corporation Act (AktG)).

Pursuant to Article 20 of the Articles of Association of GfK SE, unless otherwise stipulated by mandatory legal regulations, resolutions to amend the Articles of Association require a majority of two thirds of the valid votes cast, or where at least half of the share capital is represented, a simple majority of votes cast. In cases where the law additionally requires the majority of the share capital represented when the resolution is adopted, the simple majority of the share capital represented suffices, unless legal provisions stipulate a different majority as mandatory. The Articles of Association do not contain any regulations that exceed the statutory requirements of Sections 133 and 179 of the German Stock Corporation Act (AktG).

Powers of the Management Board to Issue or Buy Back Shares

Authorized capital

On the basis of a resolution by the Annual General Assembly on May 28, 2015, the Management Board is authorized, with the approval of the Supervisory Board, to increase the share capital of the company until May 27, 2020, through one or more issuances of no-par shares against contribution in cash or contribution in kind in a total amount up to €55,000,000.00 (authorized capital). Shareholders generally have subscription rights with respect to the new shares. In accordance with Article 9 (1) c) ii) of the SE Regulation and Section 186 (5) AktG, the new shares may be also be subscribed for by a bank or syndicate of banks with the obligation to offer these shares for subscription to the shareholders (indirect subscription rights).

The Management Board may, with the approval of the Supervisory Board, exclude the statutory subscription rights of the shareholders:

(a) if the share capital is increased against contribution in cash and the issue price of the new shares is not significantly below the price at the stock exchange; the total number of shares issued under exclusion of subscription rights pursuant to this authorization must not exceed 10 percent of the share capital, neither on the date on which this authorization becomes effective nor on the date on which this authorization is exercised. Shares issued or to be issued to satisfy subscription rights resulting from bonds with warrants or convertible bonds count towards such number, provided that such bonds were issued during the term of this authorization under exclusion of subscription rights applying, mutatis mutandis, Article 9 (1) c) ii) of the SE Regulation and Section 186 (3) sentence 4 AktG; in addition, shares sold under exclusion of subscription rights during the term of this authorization pursuant to an authorization to sell own shares in accordance with Article 9 (1) c) ii) of the SE Regulation and Sections 71 (1) no. 8 and 186 (3) sentence 4 AktG shall also count towards such number;

(b) to acquire contribution in kind in particular in connection with mergers of companies or for the direct or indirect acquisition of companies, participations in companies, parts of companies, claims (e.g., outstanding bonds) or other assets against the issuance of shares of the company;

(c) to issue the new shares as employee shares to employees of the company or affiliated companies within the meaning of Article 9 (1) c) ii) of the SE Regulation and Sections 15 et seq. AktG;

(d) to grant subscription rights for new shares to the holders of bonds with warrants or convertible bonds of the company or any of its group companies outstanding on the date of the use of the authorized capital to the extent to which such bondholders would have subscription rights as shareholders upon exercise of their conversion and/or option rights or the satisfaction of a conversion or subscription;

(e) to eliminate fractional amounts in order to facilitate a practically feasible subscription ratio.

The total number of shares to be issued under exclusion of subscription rights against contribution in cash or contribution in kind pursuant to this authorization must not exceed 20 percent of the share capital existing on the date on which this authorization becomes effective or, if such amount is lower, on the date of use of this authorization; this limitation applies to all issuances of new shares under exclusion of subscription rights pursuant to this authorization, no matter under which of the specific exemptions in the preceding paragraphs a) to e) such issuance falls. Shares issued or to be issued to satisfy subscription rights resulting from bonds with warrants or convertible bonds count towards such number, provided that such bonds were issued during the term of this authorization under exclusion of subscription rights.

The Management Board shall, with the approval of the Supervisory Board, be authorized to determine the further content of the rights represented by the shares and the terms of the issuance of the shares. The Supervisory Board shall be authorized to amend the wording of the Articles of Association in accordance with the use of the authorized capital or upon expiry of the term of the authorization.

Contingent capital
Pursuant to Article 3 (9) of the Articles of Association the share capital is contingently increased by up to €21,000,000.00, divided into up to 5,000,000 new no-par value bearer shares with profit participation from the start of the financial year of their issue (contingent capital). The contingent capital increase serves to grant shares to the holders of stock option and/or convertible loan debentures issued in exchange for cash by the company or a company in which the company holds a direct or indirect majority interest in accordance with the authorization resolved by the Annual General Assembly on May 28, 2015 under agenda item 8 b) (see below). The new shares shall be issued at the option or conversion price determined in accordance with the above authorization. The contingent capital increase shall be implemented only to the extent that stock option and/or conversion rights relating to the debentures are exercised or conversion obligations relating to the debentures are fulfilled without settlement in cash or existing shares in the company or new shares issued from other contingent or authorized capital. The Management Board shall be entitled to define the further details of the contingent capital increase with the approval of the Supervisory Board.

Issuance of Bonds with Warrants and/or Convertible Bonds
The Management Board is authorized by resolution of the Annual General Assembly on May 28, 2015 with the approval of the Supervisory Board for the period up to May 27, 2020, on one or more occasions:

> to issue bonds with warrants and/or convertible bonds through the company or domestic or foreign companies in which it holds a direct or indirect majority interest (“subordinate group companies”) in a total nominal amount of up to €250,000,000.00 for a limited or unlimited period (“debentures”) and

to assume a guarantee for debentures issued for the company by such subordinate group companies

> and to grant the holders of debentures option or conversion rights for a total of up to 5,000,000 no-par value bearer shares in the company in accordance with the terms and conditions of the debentures (“terms and conditions”).

The bonds may be denominated in Euro or the legal currency of any OECD country, up to the equivalent amount in such currency. The issue of bonds can also be made against contribution in kind, particularly for the purposes of acquisition of a company, parts of a company or shareholdings in a company, where this is in the interests of the company and the value of the payment in kind is appropriate to the value of the debenture, in respect of which the theoretical market value ascertained according to recognized rules shall apply.

As a matter of principle, shareholders are entitled to subscribe to the bonds; in accordance with Section 9 (1) c) ii) of the SE Regulation and Section 186 (5) AktG, the bonds may also be underwritten by a bank or banking syndicate with the obligation to offer them to the shareholders for subscription. If bonds are issued by a subordinate group company, the company shall ensure that subscription rights are granted to the shareholders of the company accordingly.

With the approval of the Supervisory Board, however, the Management Board shall be entitled to exclude shareholders’ subscription rights for the debentures,

if the bonds are issued for cash and the issue price is not substantially lower than the theoretical market value derived using recognized actuarial methods; however, this shall apply only providing that the shares issued to service the relevant option and/or conversion rights do not exceed 10 percent of the share capital, either at the date on which the authorization comes into force or the date on which this authorization is exercised. This amount shall include the pro rata amount of the share capital attributable to shares issued on or after May 28, 2015 from authorized capital as part of a cash capital share increase with shareholders’ subscription rights excluded in accordance with Section 9 (1) c) ii) of the SE Directive and Section 186 (3) sentence 4 AktG. This amount shall also include the pro rata amount of the share capital attributable to the sale of the company’s own shares, provided that this occurs during the term of this authorization with shareholders’ subscription rights excluded in accordance with Section 9 (1) c) ii) of the SE Directive and Section 186 (3) sentence 4 AktG,

to eliminate any fractions resulting from the subscription ratio from the subscription right of shareholders to subscribe for the bonds,

where necessary, to grant subscription rights to the holders of option or conversion rights arising from bonds with warrants or convertible bonds which were or will be issued by the company or subordinated group companies in the amount to which they would be entitled on the exercise of their rights or the fulfillment of conversion obligations,

to the extent that bonds are issued in exchange for contributions in kind, in particular to acquire companies, parts of companies, company shareholdings, receivables (e.g. outstanding bonds) or other assets, provided that this is in the interest of the company and the value of the contributions in kind is adequate in relation to the value of the issued bonds

The authorization to exclude shareholders’ subscription rights is limited insofar as, after the stock option or conversion rights have been exercised, the shares to be issued, together with shares issued during the term of this authorization on the basis of the existing authorized capital with exclusion of shareholders’ subscription rights, must not exceed 20 percent of the existing share capital at the time the authorization comes into force or – if lower – at the time the authorization is exercised.

In the event that convertible bonds are issued, the holders shall be granted the right to convert such bond into no-par value bearer shares in the company in accordance with the terms and conditions specified by the Management Board. The conversion ratio shall be calculated by dividing the nominal amount or, if prescribed by the terms and conditions, an issue price for a partial bond that is lower than the nominal amount, by the conversion price established for one share in the company. The resulting amount may be rounded up or down to a whole number; an additional cash payment and the combination of amounts or compensation for unconvertible fractions may also be specified. The terms and conditions may prescribe a variable conversion ratio and require that the conversion price (subject to the minimum price as described below) be set within a predetermined range depending on the development of the stock exchange price of the company’s shares during the term of the debenture. The proportion of the share capital attributable to the shares for each partial bond may not exceed the nominal amount of the partial bonds. Section 9 (1) c) ii) of the SE Regulation and Sections 9 (1) and 199 (2) AktG shall remain unaffected.

In the event that bonds with warrants are issued, one or more warrants will be attached to each partial bond entitling the holder to subscribe to no-par value bearer shares in the company in accordance with the terms and conditions specified by the Management Board. Such terms and conditions may include the possibility of paying the option price through the transfer of partial bonds and, if applicable, an additional cash payment. The subscription ratio shall be calculated by dividing the nominal amount or, if prescribed by the terms and conditions, an issue price for a partial bond that is lower than the nominal amount by the option price established for one share in the company. The proportion of the share capital attributable to the shares for each partial bond may not exceed the nominal amount of such partial bonds. In the event of share fractions, the terms and conditions relating to the convertible bonds and/or bonds with warrants may specify that such fractions can be added together for the purposes of acquiring complete shares. Section 9 (1) c) ii) of the SE Regulation and Sections 9 (1) and 199 (2) AktG shall remain unaffected

The terms and conditions may provide for the company not to issue new shares in the event of conversion or exercise of warrants, but to pay the equivalent value in money, such payment to equate to the unweighted average closing price of the company’s shares in Xetra trading on the Frankfurt Stock Exchange (or a comparable successor system) in the ten trading days prior to or following the declaration of conversion or exercise. At the company’s choice, the terms and conditions may also provide that new shares from authorized capital or existing shares in the company instead of new shares from contingent capital will be granted upon conversion or exercise of warrants.

The terms and conditions may also provide for a conversion obligation at the end of the term (or at another specified date) or grant the company the right to provide creditors with shares in the company in respect of all or part of the amount due on maturity of the convertible bonds; this also includes maturity due to termination (right to deliver shares).

The option or conversion price for a no-par value bearer share in the company must amount to at least 80 percent of the average volume-weighted stock exchange price of the same class of shares in the company in Xetra trading on the Frankfurt Stock Exchange (or a comparable successor system) during the last ten trading days prior to the date on which the Management Board resolves the issue of the bonds or, if shareholders are entitled to subscribe for the bonds, at least 80 percent of the average volume-weighted stock exchange price of the same class of shares in the company in Xetra trading on the Frankfurt Stock Exchange (or a comparable successor system) in the period from the start of the subscription period until the third day prior to the announcement of the final terms and conditions in accordance with Section 9 (1) c) ii) of the SE Regulation and Section 186 (2) sentence 2 AktG (inclusive).

In the case of a stock option or conversion obligation or a right to deliver shares, the specific terms and conditions state that the option or conversion price may also be lower than the aforementioned minimum price (80 percent), but must at least correspond to the average volume-weighted stock exchange price of the same class of shares in the company in Xetra trading on the Frankfurt Stock Exchange (or a comparable successor system) during a period of 15 trading days prior to final maturity or the other predetermined date.

The proportion of the share capital attributable to the shares in the company to be issued may not exceed the nominal amount of the debentures. Section 9 (1) c) ii) of the SE Regulation and Sections 9 (1) and 199 (2) AktG shall remain unaffected.

The option or conversion price may, without prejudice to Section 9 (1) c) ii) of the SE Regulation and Sections 9 (1) and 199 (2) AktG, on the basis of an anti-dilution clause as provided for in more detail in the terms and conditions of the bonds, be adjusted if the Company increases the share capital at any time before expiration of the option or conversion period while granting a pre-emptive right to the shareholders or issues or guarantees additional bonds without granting a pre-emptive right to the holders of existing option rights or convertible bonds. The terms and conditions of the bonds may also provide for a valuestabilizing adjustment of the option and/or conversion price with respect to any other measures of the Company which may lead to an economic dilution of the value of the option and/or conversion rights. The option or conversion price may also be reduced by way of a cash payment on exercise of the option or conversion right or the fulfillment of an option or conversion obligation. In all cases, the proportion of the share capital attributable to the shares to be acquired for each debenture shall not exceed the nominal value of the debenture.

The Management Board is authorized, with the approval of the Supervisory Board, or in consultation with the bodies of the subordinated group companies issuing the bonds, to determine in compliance with the above provisions the further details of the issuance of the bonds and their terms and conditions, including but not limited to, interest rate, type of interest, issue price, term and composition of the bonds, provisions on dilution protection, option or conversion period and option or conversion price.

The Management Board will, in any event, carefully check whether it should make use of the authorization to issue debentures with exclusion of any subscription rights of shareholders, and will then only proceed to do this if, having considered all relevant aspects, it is in the interest of the company and its shareholders.

Acquisition of own shares
By resolution of the Annual General Assembly on 27 May 2014 the company is authorized, pursuant to section 71 para. 1 (8) Stock Corporate Act (AktG) to acquire own shares up to a maximum of 10 percent of the current share capital (i) at the time the resolution is passed, or (ii) at the time when the authorization is exercised, whichever is the less. At no time may the shares acquired and those already in the possession of the company or attributable to the company in accordance with Sections 71a et seq. AktG cumulatively represent more than 10 percent of the share capital. This authorization shall not be used by the company for the purposes of trading in its own shares. This authorization shall be valid until May 26, 2019.

The authorization may be exercised in one or more installments, on one or several occasions, in the pursuit of one or more purposes by the company, by third parties controlled by the company or in which the company holds a majority interest or are acting for the account of such company or the company.

The acquisition of own shares shall be at the discretion of the Management Board either (i) via the stock exchange or (ii) through a public offer to all shareholders or a public invitation for such an offer to be made.

(i) If the shares are acquired on the stock exchange, the consideration paid by the company for each share (excluding ancillary purchase costs) must not be 10 percent higher or lower than the share price in the closing auction in Xetra trading (or a comparable successor system) on the day prior to the reference day. The reference day shall be the day on which the Management Board decides on the formal offer. In case of an adjustment of the offer, the date on which the Management Board finally decides on the adjustment shall be the reference date.

(ii) If the acquisition is made by way of a public offer to purchase and/or public invitation to make a purchase offer, the purchase price offered or the thresholds of the price range per share (excluding ancillary acquisition costs) may not be more than 10 percent above or below the closing price trading on Xetra (or a comparable successor system) on the trading day prior to the reference day. If there are significant variations in the relevant price after the publication of a purchase offer or a public invitation to make a purchase offer, the offer or the invitation to make a purchase offer may be adjusted. In this case, the price is based on the closing price in Xetra trading (or a comparable successor system) on the trading day prior to the date of publication of any adjustment. The purchase offer or the invitation to make such an offer may stipulate further conditions. If the purchase offer is oversubscribed or, in the case of an invitation to make the offer, not all of several equal offers can be accepted, offers may be accepted on a quota basis. Provision may be made for the preferential acceptance of small lots of up to 100 shares offered for acquisition per shareholder providing a partial exclusion of shareholders’ tender rights Provision may also be made to round off in accordance with commercial principles to avoid theoretical fractions of shares. The details of the offer or invitation to the shareholders to submit offers to sell will be determined by the Management Board.

The Management Board is hereby authorized to dispose of own shares acquired under this or a previous authorization via the stock market or by an offer to all shareholders. The Management Board is also authorized to use shares acquired under this or a previous authorization or otherwise under Sections 71 et seq. AktG for any and all legally permissible purposes, and, in particular, for the following purposes:

  1. The shares may also be sold by means other than on the stock exchange or by way of an offer to all shareholders if they are sold for cash at a price that is not substantially lower than the market price of shares of the company with the same terms at the disposal date. The relevant market price shall be the average closing price of shares of the company in Xetra trading (or a comparable successor system) during the last five trading days prior to the sale of the shares. In this case, the number of shares authorized for sale may not exceed 10 percent of the share capital at the date on which the resolution is adopted by the present Annual General Assembly or, if lower, 10 percent of the registered share capital of the company at the date on which the shares are sold. This limit of 10 percent of the share capital shall include any shares issued during the period of validity of this authorization in direct application of Section 186 (3) sentence 4 AktG or if applied mutatis mutandis with simplified exclusion of shareholder subscription rights. This limit of 10 percent of the share capital shall also include such shares as are issued to service convertible bonds and/or bonds with warrants, providing that the bonds have been issued during the period of validity of this authorization in applying Section 186 (3) sentence 4 AktG mutatis mutandis with exclusion of shareholder subscription rights.
  2. Shares may be offered and transferred against payment in kind, particularly in connection with corporate mergers or acquisitions of companies or parts of companies or participations in companies, or in connection with acquiring other assets.
  3. Shares may be used to meet conversion and/or option obligations under or in connection with convertible bonds and/or bonds with warrants issued by the company or its group companies. Shares may also be transferred for securities lending purposes.
  4. The shares may be redeemed without the redemption or its execution requiring a further resolution by the Annual General Assembly. The redemption may be limited to parts of the acquired shares. The redemption will lead to a reduction in the company’s share capital. Alternatively, the Management Board may determine that the share capital shall remain unchanged following the redemption and that the interest of the other shares in the share capital shall instead increase in accordance with article 8 (3) AktG. In this case, the Management Board shall be authorized to adjust the number of shares stated in the Articles of Association.

The authorizations above may be exercised on one or more occasions, individually or jointly, comprehensively or for partial quantities of the acquired shares. The authorizations specified under (1), (2) and (3) above may also be used by entities controlled by the company, companies in which the company holds a majority interest or by third parties acting on their account or for account of the company.

The shareholder´s subscription right for these shares is excluded to the extent that those shares are used in accordance with the authorization specified under (1) to (3) above.

Significant agreements which take effect upon a change of control of the company following a takeover bid
In the event of a change in the controlling interest as part of a takeover bid, the revolving credit facility renegotiated in 2014 (amend to extend) of €182 million and €18 million ancillary line, the loan notes from 2013 (€85 million), 2015 (€114 million) and 2016 (€130 million) as well as various bilateral bank loans (€120 million) may fall due. A change of controlling interest is defined as a party other than the GfK-Nürnberg, Gesellschaft für Konsum-, Markt- und Absatzforschung e.V., alone or together with others acquiring the right to exercise more than 50 percent of the voting rights, either directly or indirectly, or to hold more than 50 percent of the company’s capital. With regard to a public offering for acquiring shares in the company, the law and Articles of Association including the provisions of the German Securities Acquisition and Takeover Act (WpÜG) apply exclusively.

Compensation agreements in case of a takeover bid
No compensation agreements are in place between members of the Management Board or employees of GfK SE for the event of a takeover bid.

2.8. Sectors: A focus on consumers and markets

With our two complementary sectors, Consumer Experiences and Consumer Choices, we offer our clients worldwide a comprehensive range of information and advisory services.

The Consumer Experiences (CE) sector deals with consumer behavior, perceptions and attitudes. Here, we offer our clients well-founded answers concerning the who, why and how of consumption. In order to develop a profound understanding of how consumers experience brands and services, we constantly develop pioneering new procedures, some of which are highly complex. These are complemented by proven creative, robust and flexible methods for market analysis.

The Consumer Choices (CC) sector investigates what is bought by consumers, when and where. The main focus in this sector is on the continuous measurement of market volumes and trends, and we include all the significant media, sales and information channels in our analysis.

In this way, we combine substantial insights into consumer decisions and market trends with profound knowledge concerning the drivers of these developments – all over the world. The combination of these two sectors offers great added value for our clients, many of whom operate in a large number of different markets.

For the internal management of both sectors, GfK uses two key financial performance indicators: Sales and margin (adjusted operating income in relation to sales).

Complementary to these two sectors is the Other category, which brings together GfK’s central services.

Below is the economic development.

Economic development of the sectors

Consumer Experiences: In the past financial year, the Consumer Experiences sector achieved sales of €803.0 million (-6.5 percent versus the prior year). Organic sales declined by 6.4 percent. The added negative impact of currency effects on sales development was -2.3 percent. The figure for growth from acquisitions in the reporting period was 2.2 percent.

The strategic restructuring of the Consumer Experiences sector continued to be driven forward in 2016. The development of ad hoc market research business in established markets such as Northern Europe, Southern and Western Europe and North America had a detrimental impact on the sales trend. This is attributable to a fall in orders from existing clients as well as strong competitive pressure. Sales growth was also negative in the Central Eastern Europe/META and Asia and the Pacific regions. The prevailing difficult political situations in a number of countries in the META region also depressed the order situation. However, pleasing sales development was recorded in the growth region of Latin America. Growth from acquisitions was attributable to the acquisition of two companies: NORM, in Sweden and the Netherlands, and Netquest, which has a presence in the regions of Southern and Western Europe, Latin America and North America. Through these acquisitions, we have strengthened our digital competence and further expanded our global presence in digital business areas and for global products.

At €54.0 million, income was down €4.9 million on the prior year (-8.4 percent).

In the 2016 financial year, the operating income margin was 6.7 percent, which is a slight decline versus the prior year’s value of 6.9 percent. Despite negative sales growth, there was some notable countermovement to prevent a fall in the operating income margin. This was achieved through the further optimization of processes, the positive impact of implemented efficiency-boosting measures and focusing on resource and cost optimization.

The efficiency gains and acquisitions in the Consumer Experiences sector also had an impact on personnel. The number of staff has fallen to 5,677 employees in the past financial year (previous year: 5,892 employees).

CONSUMER EXPERIENCES: KEY INDICATORS 1)

in € million 2015 2016 Change in percent
Sales 859.1 803.0 – 6.5
Adjusted operating income 58.9 54.0 – 8.4
Margin in percent 6.9 6.7 – 0.1 2)
Employees 5,892 5,677 – 3.7

1) Rounding differences may occur
2) Percentage points

Consumer Choices: In 2016, sales in the Consumer Choices sector remained almost on a par with the previous year, at €680.3 million. Organic growth amounted to 4.1 percent. The divestment of Crop Protection and  Animal Health activities as well as the exchange rate trend together brought about a decline in overall sales of -0.1 percent.

In all regions, the development of organic sales growth was positive. The growth regions of Central Eastern Europe/META and Asia and the Pacific benefited from Media Measurement contracts in the Kingdom of Saudi Arabia and Singapore, respectively. Currency effects above all had a negative impact on development in the regions of Latin America, Central Eastern Europe/META and Northern Europe.

Double-digit sales growth on the previous year was achieved in media measurement business. This is above all attributable to the contracts in Singapore and the Kingdom of Saudi Arabia. The development in TV audience measurement projects in Brazil and the Kingdom of Saudi Arabia remains critical and negotiations relating to contract amendments are still underway. No sales have been posted for the contract in Brazil since March 2016. By contrast, the productive cross-sector cooperation for the GfK Crossmedia Link product was driven forward, with growth being generated in established markets and initial successes being achieved in new countries.

Core business in the area of point of sale measurement (taking into account divestments) continued to develop well, achieving low single-digit growth. In particular, the product groups of telecommunications, small and medium domestic appliances (SDA/MDA) realized robust sales growth, while the consumer electronics segment closed down on the previous year’s result. This is above all due to the portfolio reductions in key accounts. Delays in the marketing of growth projects also had a damaging impact.

At €114.6 million, income in the Consumer Choices sector was significantly down on the previous year, by €30.5 million (2015: €145.0 million). The margin declined by 4.5 percentage points to total 16.8 percent. This is above all attributable to the performance of TV audience measurement projects in Brazil, taking into account risk prevention measures. In addition, delays in growth projects in the area of point of sale measurement and the discontinuation of AutoCat activities also had a negative impact. The business development of the sold Crop Protection and Animal Health activities and Genius Digital also had a negative impact.

As at December 31, 2016, the number of staff was 5,620 (previous year’s figure: 5,828). This decline is principally attributable to the divestment of Crop Protection and Animal Health (-142 employees) and Genius Digital (-22 employees). The expansion of capacity in the Global Service Centers and the associated improvement in efficiency resulted in an overall reduction of 208 employees.

CONSUMER CHOICES: KEY INDICATORS 1)

in € million 2015 2016 Change in percent
Sales 681.1 680.3 – 0.1
Adjusted operating income 145.0 114.6 – 21.0
Margin in percent 21.3 16.8 – 4.5 2)
Employees 5,828 5,620 – 3.6

1) Rounding differences may occur
2) Percentage points

Other: As part of its global strategy, GfK is centralizing the expenses for general administrative functions (corporate functions) in the Other category. In particular, investments have been made in IT hardware and software as well as process optimization to be able to manage business more effectively and efficiently.

Sales in the Other category were at €0.5 million in the reporting period and therefore €2.7 million down on the previous year’s level (2015: €3.2 million). This decline was due to the sale of the Print Center activities in Switzerland at the start of 2016.

The loss for 2016 in the Other category was €-13.3 million, which is a considerable improvement on the previous year’s figure (2015: €-16.4 million).

In view of the stewardship expenses also incurred at Group level, it is likely that the Other category will continue to report a loss in future.

At year-end 2016, the number of employees in the Other category was 1,772 and therefore almost unchanged compared with the same point in the prior year (2015: 1,765 employees)

OTHER: KEY INDICATORS 1)

in € million 2015 2016 Change in percent
Sales 3.2 0.5 – 84.4
Adjusted operating income – 16.4 – 13.3 19.0
Employees 1,765 1,772 0.4

1) Rounding differences may occur

2.9. Regions: Proximity to our clients worldwide

The GfK Group is represented in more than 100 countries via its subsidiaries. Our operations are organized geographically into six regions: Northern Europe, Southern and Western Europe, Central Eastern Europe/META (Middle East, Turkey and Africa), North America, Latin America and Asia and the Pacific.

In 2016, the regions Asia and the Pacific, Central Eastern Europe/META and Latin America grew organically and developed positively despite predominantly negative currency effects. The region Southern and Western Europe experienced organic growth in the fourth quarter. However, the decline from the first three quarters of the year could only partially be offset. There were sales declines in the regions Northern Europe and above all in North America.

Northern Europe: At 36.2 percent of total sales, Northern Europe still accounts for the highest share of sales. Total sales declined by 6.6 percent in 2016 to total €537.4 million. The decline was attributable to a fall of 2.1 percent in inorganic growth. This was essentially due to the divestment of Crop Protection and Animal Health business activities. The UK was the main driver behind this further overall decline. In addition, growth was negatively affected by currency effects of -2.4 percent, to which the weak pound sterling significantly contributed

NORTHERN EUROPE: KEY INDICATORS 1)

in € million 2015 2016 Change in percent
Sales 575.6 537.4 – 6.6
Employees 3,570 3,367 – 5.7

1) Rounding differences may occur

Southern and Western Europe: A sales increase was also registered in Southern and Western Europe again in 2016: Overall growth of 1.0 percent brought sales to €269.8 million. An organic sales decline of 2.7 percent was offset by the acquisitions of Netquest and NORM which contributed 3.7 percent to overall growth.

SOUTHERN AND WESTERN EUROPE: KEY INDICATORS 1)

in € million 2015 2016 Change in percent
Sales 267.0 269.8 1.0
Employees 1,893 1,979 4.6

1) Rounding differences may occur

Central Eastern Europe/META: In financial year 2016 we renewed strong organic growth of 5.1 percent. Unfavorable currency effects led to total growth of 1.1 percent. The most significant contribution to this was delivered by the Media Measurement contract in the Kingdom of Saudi Arabia.

CENTRAL EASTERN EUROPE/META: KEY INDICATORS 1)

in € million 2015 2016 Change in percent
Sales 126.5 127.9 1.1
Employees 3,490 3,536 1.3

1) Rounding differences may occur

North America: In 2016, the region North America was unfortunately unable to replicate the extremely strong sales growth recorded in the prior year. A decline of 6.9 percent in organic terms was ultimately recorded. The divestment of Crop Protection and Animal Health business activities more than offset the positive effect from the acquisition of Netquest. Overall, this negatively affected growth and led to a decline of 2.9 percent.

NORTH AMERICA: KEY INDICATORS 1)

in € million 2015 2016 Change in percent
Sales 321.0 289.8 – 9.7
Employees 1,041 915 – 12.1

1) Rounding differences may occur

Latin America: In Latin America, the GfK Group was able to increase organic sales by 5.4 percent versus the prior year. The acquisition of Netquest induced a positive effect of 6.5 percent. However, negative currency effects amounting to -9.3 percent countered this. The overall balance showed sales of €69.7 million. This equates to total growth of 2.6 percent.

LATIN AMERICA: KEY INDICATORS 1)

in € million 2015 2016 Change in percent
Sales 67.9 69.7 2.6
Employees 1,202 1,155 – 3.9

1) Rounding differences may occur

Asia and the Pacific: In this region, the GfK Group recorded sales of €189.3 million during financial year 2016. This corresponds to organic growth of 2.3 percent on the prior year. We benefited from the Media Measurement contract in Singapore. Negative currency effects from China were balanced out by positive ones from Japan. This led to total growth of 2.1 percent.

ASIA AND THE PACIFIC: KEY INDICATORS 1)

in € million 2015 2016 Change in percent
Sales 185.4 189.3 2.1
Employees 2,289 2,116 – 7.6

1) Rounding differences may occur

The major changes in the GfK network are shown below.

MAJOR CHANGES IN THE GFK GROUP

Company Investment activity Stake change in percent Sector Region
Netquest Acquisition From 0 to 100 Consumer Experiences Southern and Western Europe, Latin America
Crop Protection and Animal Health business Divestment From 100 to 0 Consumer Choices Worldwide
USEEDS Divestment From 50 to 0 Consumer Experiences Northern Europe
GfK Print Center Divestment From 100 to 0 Consumer Experiences Northern Europe
Qosmos Divestment From 11.7 to 0 Consumer Experiences Southern and Western Europe, North America, Asia and the Pacific
Genius Digital Divestment From 75 to 0 Consumer Choices Northern Europe
NOP Global Ltd. Divestment From 100 to 0 Consumer Experiences Northern Europe, Asia and the Pacific
SMSI France Divestment From 20.4 to 0 Consumer Experiences Southern and Western Europe
General