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Letter to the shareholders



Speaker of the Management Board and CCO

2016 was a challenging year for GfK. However, at the same time, we have been able to set the course for the company’s successful future.

We further developed the structure of our company in line with market requirements at the start of 2016, taking us closer to our goal – One GfK: One Industry, One Region and One Operations. The introduction of an Operations unit with dedicated responsibility at Management Board level played an important part in this. Since April 2016, business activities have also been managed under an integrated organization in Germany, our single biggest market worldwide.

Digital innovation was a focus. Unified panel management, optimized data processing for mobile device usage and a focus on Global Service Centers and standardized data center platforms are all aimed at generating value added. Our new software applications, such as Retail Scout and Crossmedia Visualizer, use advanced high-performance web technology. This enables us to offer our clients even faster and more interactive analysis results.

Major projects were realigned, and we further strengthened our digital activities with targeted acquisitions. At the same time, we reduced our activities in fields with a less promising future. 
Nevertheless, the company’s overall financial performance was unsatisfactory.
With regard to sales, we recorded a decline of 3.9 percent in total for 2016. In addition to the sales decline of 1.7 percent in organic terms, currency effects of 1.6 percent had a negative impact. We must assume that our global market share has shrunk. 

In the Consumer Experiences sector, we focused on streamlining processes and enhancing customer orientation during 2016. With a sales decline in organic terms of 6.4 percent and a 6.7 percent margin, the performance fell short of our expectations in what were, as expected, challenging market conditions.

The Consumer Choices sector was to achieve significant sales growth and a further increase in its share of sales in relation to Group sales. The margin was to improve on the prior year. Overall, organic sales growth of 4.1 percent produced a margin of 16.8 percent, which was still considerably below our expectations. Ongoing difficulties with the two TV Audience Measurement contracts in Brazil and the Kingdom of Saudi Arabia as well as delays in connection with growth campaigns were decisive factors in this respect.

The market as a whole has continued to record a decline in “traditional” market research. Conversely, growth was recorded for consultancy-oriented companies as well as the fields of online research and software. As in prior years, we continued our work on further developing our portfolio of products and services in response to this trend. We also enhanced existing products. As before, our focus was on digital products and solutions.

For example, the acquisition of Netquest at the beginning of 2016 in the Consumer Experiences sector resulted in the consistent expansion of our online panels and technological platforms for collecting data and making data available. Netquest is a leading provider of highly qualified, cross-device digital panels and behavioral data. The acquisition also included Wakoopa, a subsidiary and leader in passive cross-device measuring technology. Netquest is currently predominantly active in Spain, Portugal and Latin America. We are intensively driving the expansion into other key markets.

In 2016, we made intensive preparations for another promising approach, which was recently launched in the market in February 2017. SUPERCRUNCH by GfK offers clients a completely new type of automated user-defined analysis. It facilitates fast and cost-effective solutions to key marketing issues. Data from the respective clients as well as from both GfK and third parties form the basis of this approach. The data from different sources is connected and evaluated using smart analysis technology. In addition to GfK’s core offering to date, SUPERCRUNCH by GfK solely focuses on data analysis and its technological implementation as part of decision-making systems at clients rather than on data collection. 

We reduced any activities that are less promising moving forward. In the second quarter of 2016, we completed the divestiture of global market research activities in Animal Health and Crop Protection. They were previously assigned to the Consumer Choices sector.

In the prior fiscal year, we had already simplified our Group structure significantly by dissolving the cross ownership with the NPD Group, a market research company based in the USA. This was replaced by an agreement for a strategic partnership. Since then, the proportion of consolidated total income due to minority shareholders has declined substantially. Further simplification of the Group structure is based on merging companies. This will increase eficiency. We made good progress in 2016 and will consistently seek to pursue these measures further. 

We also continued the optimization and standardization of our systems for business and financial information. We implemented systems in additional parts of our business while making adjustments in line with the changes to the set-up of our business. In 2016, this included the introduction of software in a further ten countries – particularly in the region of Asia and the Pacific – for the uniform management of our processes and reporting. In Latin America and certain other countries, we made the preparations for launching the respective software in 2017. The new system currently covers 83 percent of sales. This increases transparency and facilitates better management of our projects and processes. 

A significant step in setting the future course of our company was made at the end of the year with the public takeover offer by Acceleratio Capital N.V., a holding company owned by investment funds which are advised by Kohlberg Kravis Roberts & Co. L.P. (KKR).

While rigorously working on GfK’s transformation in recent years, we also considered additional strategic options together with the Supervisory Board. From our perspective, the KKR transaction is in the best interests of the company, shareholders, employees and clients. We are therefore delighted that many shareholders accepted KKR’s offer. It means that we now have strong partners at our side to support us in implementing our growth strategy quickly and consistently. Together, we will make GfK fit for the future and offer outstanding products and solutions to our clients.

The competitive environment will remain challenging in 2017. At present, we expect capital expenditure to be up slightly versus the prior year. With regard to company takeovers, investments will be carefully evaluated on a case-by-case basis. Technology-driven and data-centric companies are particularly attractive, as they rapidly add value. 

In the Consumer Experiences sector, our focus is on optimizing and streamlining processes and our product portfolio. A challenging market environment will persist with regard to our ad hoc business in 2017. In light of this, sales are expected to decline slightly and we are aiming to record a margin in line with the prior year.

In the Consumer Choices sector, potential for growth and increasing the margin is to be consistently exploited. Point of Sales Measurement as the core business will be expanded to include new product categories and services and supplemented with modern online evaluation options. We expect that the sector will record moderate growth. The margin is set to be up on the prior year, provided that ongoing teething problems with the two TV Audience Measurement contracts in Brazil and the Kingdom of Saudi Arabia are resolved. Should these delays persist further, it may lead to a decline in sales and together with impairments, this could also lead to a decline in adjusted operating income. 

For 2017, the GfK Group expects a slightly higher sales trend versus the prior year, depending on the mentioned challenges, and an AOI margin (adjusted operating income against sales) in the same range as 2016. 

On behalf of the Management Board, I would like to take this opportunity to thank our more than 13,000 employees who have shown great commitment in helping to support and shape the comprehensive changes. It is they, after all, who analyze the needs and activities of consumers and, with their knowledge, expertise and passion, assist our clients in mastering current and future challenges. 

I also thank our shareholders and the Supervisory Board on behalf of the Management Board for the trust and support you are showing us during a challenging time.