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Group Management Report

 

13 Outlook*

13.1 Overall economic situation: An optimistic start to the new year

Following worldwide economic growth of 3.1 percent in 2015, the International Monetary Fund (IMF) expects a growth of 3.4 percent in 2016 and 3.6 percent in 2017. The main factors influencing this are the gradual deceleration of growth in China as an economic superpower, the low price level for energy and commodities as well as the tightening of fiscal policy in the US.  

For developed markets, the IMF experts forecast a gradual recovery of the economy, while the picture varies in the emerging and developing countries. Brazil is still stuck in recession, while Russia is suffering from low oil prices and Western sanctions. For China, a slowdown in the economy to 6.3 percent (2016) and 6.0 percent (2017) is expected to result in a decline in investments. A robust growth rate is expected for India and the rest of the emerging markets.  

The IMF experts believe that the US economy continues to benefit from cheap money and the strengthened real estate and labor market, while the strong US dollar is a heavy burden on exporters, and low oil prices could curb investments in the energy and natural resources sector. 

In Europe, positive economic conditions have contributed to a significant increase in the consumer confidence towards the end of 2015. This is demonstrated by the GfK Consumer Climate Europe survey, conducted by GfK on behalf of the European Commission. To determine a consumption indicator, GfK surveyed 40,000 representatively selected citizens in 28 countries of the European Union.  

Consequently, the consumer climate in the European Union rose between September and December 2015 by 1.9 percent to 12.2 points. A major reason was the increase in economic performance in virtually all of the EU countries. In addition, consumers had more disposable income for consumption due to the decrease in oil and energy prices. Because the level of unemployment has dropped significantly in virtually all European countries, fears of job losses decreased, which in turn led to increased economic and income expectations. Despite the refugee crisis and the terrorist attacks in Paris in November 2015, European consumers were looking into the new year with a great deal of optimism. GfK forecasts a real increase in private consumption by 1.5 to 2 percent for the entire European Union.  

13.2 Market research industry: A skeptical view ahead

The views of market researchers on the respective industry are largely skeptical. While an increased need for opinion surveys is expected in the United States in the run-up to the 2016 presidential election, the market operators interviewed by ESOMAR throughout the world remain cautiously optimistic. In the previous survey, 82 percent of industry experts forecasted growth (and consequently proved to be wrong). In the following year, the share of optimists contracted to 58 percent, with over a fifth of market participants expecting a continued contraction of their sales. However, very different expectations can be observed at regional level.

Asia, Africa and the Middle East are among the more optimistic industry participants. In Japan growth of 3 percent to 4 percent is expected. In the Middle East, the Gulf States could continue to be a major growth driver for another year. There is optimism in Africa too: Given new methodologies and a further diversification of the market, an increase of 10 percent is expected in South Africa, while market growth of 12 percent and 15 percent is expected for Nigeria and Kenya respectively. “However, given various economic problems in the regions, all these expectations should be considered cautiously,” ESOMAR analysts warn.

The overall market in Europe is displaying signs of fairly moderate growth due to the continuing downturn in the continent’s economy. The same can be said for Russia, where the market could even contract significantly further due to continued tensions with its European partners and continuing sanctions. In the United States, however, the presidential election as well as the ongoing economic recovery are likely to generate strong momentum for the industry. 

In Latin America, the two biggest markets in Brazil and Mexico will go into a stable or a slight decline in sales, while smaller markets such as Chile and Honduras anticipate growth rates in the low single-digit range. In Uruguay – still the world’s fastest growing market of the continent in 2014 – the fear of an economic slowdown as well as the lapse of poll projections could provide for a double-digit drop in sales.

“Against this background, more cautious expectations of 1 percent growth in the traditional sectors and 3 percent in the emerging industries,” explain ESOMAR experts. They conclude their industry outlook with the Confucian saying that only those who expect nothing of the future can avoid disappointment.

13.3 Outlook and order intake

GfK’s motto for the financial year 2015 was ‘Shape for Growth’. This involved growth in the Consumer Choices and Consumer Experiences business sectors, increased productivity and further development of the Group as an integrated ‘One GfK’ company. GfK progressed well on that way. Nevertheless, we are still facing many challenges: in an extremely dynamic market environment, clients´ demands are rapidly changing. Therefore, GfK’s innovation pace remains high in 2016 to further strengthen the company’s position in the future. This year will also see some changes to the company’s structure. The separation of operations from the two sectors will lead to a greater focus and initial cost savings.

To enhance its competitive edge, GfK will increase the level of investment of around € 105 million in 2015 to around € 180 million in 2016. This year we expect a slightly lower capital expenditure investment level of around € 80 million. With regards to mergers and acquisitions, investments will be carefully evaluated on a case-by-case basis. GfK is above all interested in technology-driven companies which could immediately offer added value. However the focus will continue to be on organic growth.

In the Consumer Experiences (CE) sector, the focus is on optimizing and streamlining the company’s operations. On the market side, we will focus on customer orientation. The objective is to speed up the launch of multi-channel products, strengthen the sales team, and become more professional. The market environment for ad hoc business will remain challenging in 2016. In light of this, the CE sector is expected to make a growth contribution at market level in 2016. On the operations side, we will further increase efficiency. We intend to modestly improve the margin with these measures.  

The Consumer Choices sector will continue to systematically pursue new growth and margin opportunities. The core business, POS Measurement, will be expanded further with new product categories, industries and services, as well as online evaluation options. In Media Measurement, the set-up of new panels to measure TV audiences is expected to make a significant contribution to sales. Our GfK Crossmedia Link product will be launched and evolved into a key digital product in additional countries. The Management Board assumes that the sector will again achieve significant growth. Its revenue share, based on the Group sales, will increase further. The margin should improve considerably against the previous year.

In 2016 the Group anticipates a modest organic growth higher than in the previous year and above the market research sector. The AOI (Adjusted Operating Income) margin should increase considerably.

The year started in line with expectations. Sales coverage at the end of January 2016 was already 41.2 percent of predicted annual sales (2015: 40.7 percent). It is therefore well within the range of 33 percent and 42 percent over the last five years.

Nuremberg, March 11, 2016

Matthias Hartmann
Christian Diedrich
Alessandra Cama
Dr. Gerhard Hausruckinger
David Krajicek

* The outlook contains predictive statements on future developments, which are based on current management assessments. Words such as “anticipate”, “assume”, “believe”, “estimate”, “expect”, “intend”, “could / might”, “planned”, “projected”, “should”, “likely” and other such terms are statements of a predictive nature. Such predictive statements contain comments on the anticipated development of sales proceeds and income for 2016. Such statements are subject to risks and uncertainties, for example, economic effects such as exchange rate fluctuations and changes in interest rates. Some uncertainties or other unforeseen factors which might affect ability to achieve targets are described under the ‘Risk position’ in the Group Management Report. If these or other uncertainties and unforeseen factors arise or the assumptions on which the statements are based prove to be incorrect, actual results could materially differ from the results indicated or implied in these statements. We do not guarantee that our predictive statements will prove to be correct and do not accept any liability for these statements. The predictive statements contained herein are based on current Group expectations and are made on the basis of the facts on the day of publication of the present document. We do not intend or accept any obligation to update predictive statements on an ongoing basis.

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