Annual Report 2002 GfK. Growth from Knowledge Knowledge: the gateway to customers and consumers CONTENTS Th e G f K G R O U P: A N N U A L R E P O R T 2 0 0 2 K N O W L E D G E : T H E G AT E WAY T O CUSTOMERS AND CONSUMERS C2* The GfK Group, business divisions and regional presence 1 Aims and strategies, highlights 2002, mission statement 2 Members of the Supervisory Board Report by the Supervisory Board 6 Foreword by the Chief Executive Officer: To our shareholders and business associates 9 Renewing our core message “GfK. Growth from Knowledge” 12 Overview of 2002 14 GfK special: the market research industry and GfK business divisions Knowledge: the gateway to customers and consumers 52 GfK shares – Investor Relations: Difficult year for GfK shareholders 58 The Management Board * Cover pages are marked with “C” MANAGEMENT REPORT AND FINANCIAL S TAT E M E N T S F O R T H E G f K G R O U P 61 Management report 89 Financial statements 94 Notes to the consolidated financial statements 127 Auditors’ report A D D I T I O N A L I N F O R M AT I O N 129 Glossaries and abbreviations 134 Contacts C3 The GfK Group: five-year overview C3 Index C4 Financial terms Information services in four business divisions CONSUMER TRACKING Through its Consumer Tracking division, GfK provides clients in 24 countries throughout Europe with information services based on continuous surveys and analyses of consumer purchasing decisions and behaviour. These cover consumer goods and services of all kinds. NON-FOOD TRACKING Through its Non-Food Tracking division, GfK provides clients in industry and retail in 44 countries around the world with information services derived from continuous retail sales analyses and surveys on consumer technology markets. MEDIA Through its Media division, GfK provides clients in 20 countries throughout Europe with information services on the intensity and nature of media usage and media acceptance. The offering covers both the classic media such as television, radio, print and outdoor advertising as well as the new online and offline media. AD HOC RESEARCH Through its Ad Hoc Research division, GfK provides clients in 29 countries around the world and via partnerships in another 61 countries with information services for their operational and strategic marketing decisions. These include tests and surveys on product and pricing policy, brand management, communication, distribution and customer loyalty. Sales by business division, 20021) In % In EUR m 5% 15 % Consumer Tracking 15 % 86.0 Non-Food Tracking 25 % 137.3 44 % Media 11 % 61.3 Ad Hoc Research 44 % 246.3 25 % Other 5% 28.5 11% Total 100 % 559.4 1) Rounding differences possible THE GfK GROUP, BUSINESS DIVISIONS AND REGIONAL PRESENCE Established almost 70 years ago as Germany’s first market research company, with more than 120 subsidiaries, offices and participations in over 50 countries on five continents, the GfK Group is one of the leading market research organizations. Ranked No. 1 in Germany and No. 5 in the world, the Group employed almost 4,900 people at the end of financial year 2002, over 70 per cent of whom are based outside Germany. We provide clients from industry, retail, the service sector and the media with information services, which they use for their marketing to existing and potential clients as well as to distinguish themselves from the competition. As a company with a long tradition, we are careful to maintain in our work the continuity that comes with decades of success in the business. At the same time, we use innovation and progress to drive our activities. The GfK Group – worldwide presence Northern Europe Denmark, Finland, Ireland, Norway, Sweden, UK Western and Germany, Austria, Belgium, Cyprus, France, Greece, Italy, Southern Europe Netherlands, Portugal, Spain, Switzerland Central and Azerbaijan, Bulgaria, Croatia, Czech Republic, Hungary, Poland, Eastern Europe Romania, Russia, Serbia and Montenegro, Slovakia, Slovenia, Turkey, Ukraine Asia and Australia, China, Hong Kong, India, Indonesia, Japan, Korea, the Pacific Malaysia, New Zealand, Singapore, Taiwan, Thailand, Vietnam America Brazil, Canada, Mexico, USA Middle East Egypt, Iran, Saudi Arabia, South Africa, United Arab Emirates and Africa Sales by regions, 20021) In % In EUR m 7% Germany 37 204.7 5% 5% Northern Europe 11 59.1 37 % Western and Southern Europe 35 196.7 Central and Eastern Europe 5 28.5 America 7 40.4 35 % 11 % Asia and the Pacific 5 30.1 Total 100 559.4 1) Rounding differences possible Aims and strategies, highlights 2002, mission statement THE GfK GROUP HIGHLIGHTS 2002 The GfK Group: number 5 in the market research industry worldwide + CONVINCING C O R P O R AT E VA L U E S • The GfK Group increased its sales in 2002 by 10.6 per cent to EUR 559.4 million, making it the number 5 in • Client focus the market research industry worldwide. • Our people • There was an over-proportional increase in EBIT including • Innovation income from participations, which rose 53.1 per cent to EUR 50.0 million. The EBIT margin after income • Global expertise – from participations also improved from 6.5 per cent to local knowledge 8.9 per cent. • Growth • Organic growth amounted to 3.5 per cent. GfK has again outperformed the market research sector. 1 • GfK continued to expand its network in 2002, in particular in Europe and Asia and the Pacific as well as in its + AMBITIOUS AIMS healthcare activities. • Outperform sector sales growth • Achieve attractive margins • Lead the way through innovation M I S S I O N S TAT E M E N T • Focus on customer loyalty Companies need to make decisions. Knowledge is the basis for decision-making. + C L E A R S T R AT E G I E S Our business information services provide the essential knowledge that industry, retail, the service sector and the • Expansion in selected markets media need in order to make their decisions. As a knowledge provider, we aim to be at the top in all the global markets • Excellence in added value services and in which we operate – in the interests of our clients, our consultancy employees, our company, our shareholders and the general • Leverage of our unique expertise in public. consumer, healthcare, media and retail markets • Long-term investment in most advanced technologies and Internet applications = Growth from Knowledge THE SUPERVISORY BOARD Peter Zühlsdorff Dr. Wolfgang C. Berndt Since 13 June 2002 Chairman of the Supervisory Board Member of the Board of Directors, Managing Director, Cadbury Schweppes Tengelmann Warenhandelsgesellschaft, PLC, London, UK Mülheim/Ruhr Member of Österreichische Werbewissenschaftliche Gesellschaft, Vienna, Austria Managing Partner of DIH – Deutsche Industrie Holding GmbH Peter Danzl Independent Works Council representative at GfK Aktiengesellschaft Helga Haub 2 Until 13 June 2002 Advisor to the sole Managing Partner of Tengelmann Warenhandelsgesellschaft, Wiesbaden Klaus Hehl Deputy Chairman of the Supervisory Board Hans-Jürgen Kunert Independent Works Council representative at GfK Aktiengesellschaft Robert Raeber Chairman of the CIAA (Confederation of the Food and Drink Industries of the EU) Hayo Riesenbeck Since 13 June 2002 Director of McKinsey & Company, Düsseldorf office Dr. Karl Gerhard Schmidt Until 13 June 2002 Chairman of the Supervisory Boards of Greiffenberger AG, Marktredwitz, and Strenesse AG, Nördlingen Dieter Wilbois Senior Specialist Software Development at GfK Aktiengesellschaft Elmar Wohlgensinger President of the Board of Administration of the IHA Institut für Marktanalysen AG, Hergiswil, Switzerland Report by the Supervisory Board THE GfK GROUP REPORT BY THE SUPERVISORY BOARD In financial year 2002, the Supervisory Board kept itself informed on a regular basis of the GfK Group’s business development, income and financial position, its personnel situation and impending investments. It has monitored and advised on the activities of the company’s Management Board and discussed all significant business events with the Management Board. In addition, at the five meetings of the Supervisory Board, individual topics were discussed in depth. The main topics here were the strategic direction of the GfK Group and its international acquisitions activity, discussion and approval of the annual accounts for 2002, as well as discussion and approval of the budget for financial year 2003. 3 The Supervisory Board also dealt with the status of and further implementation of the GfK Group’s risk management system. The discussion and implementation of corporate governance rules were also high on the agenda. During the financial year, the Chairman of the Supervisory Board was in constant contact with the Management Board. The work of the Supervisory Board was supported by the Finance Committee and Personnel Committee. The Finance Committee, which held four meetings in 2002, dealt with the company’s business development, income and financial position as well as impending investments. Additional focal points were the investment policy for the company’s liquid funds as well as the further development of the risk management system and internal auditing. Other main topics were questions pertaining to the accounting system and interim reporting for the company. The Personnel Committee also met four times and mainly deal with the remuneration of the Management Board and questions relating to contract extensions for the Management Board, as well as discussing the GfK Group’s personnel strategy. In a difficult economic environment, the GfK Group continued its targeted global expansion through strong organic growth and acquisitions during financial year 2002. The expansion of its network of holdings was in line with the Group’s strategy as developed by the Management Board and approved by the Supervisory Board. At the end of financial year 2002, the Supervisory Board noted that as number five in the top ten competitors in its field, the GfK Group is in a good position. At the Annual General Meeting on 13 June 2002, Helga Haub and Dr. Karl Gerhard Schmidt resigned from the Supervisory Board at their own request. The Supervisory Board would like to thank them for the many years’ of dedicated commitment to the interests of the GfK Group. At the proposal of the Supervisory Board, the Annual General Meeting appointed Dr. Wolfgang C. Berndt and Hayo Riesenbeck to the Supervisory Board. The GfK Supervisory Board therefore benefits again from two experts with many years of experience in industry and consulting. The term of office for the new members shall run until the end of the Annual General Meeting which approves the actions of the Supervisory Board for financial year 2005. During the last financial year, the Supervisory Board extended the contract with Dr. Gérard Hermet, who is responsible for the Non-Food Tracking division, 4 in advance for a further five years until 31 December 2008. In accordance with the resolution of the Management Board in its meeting on 9 December 2002, the Supervisory Board resolved on 19 December 2002 to implement the recommendations of the Government Commission German Corporate Governance Code with three deviations. GfK has issued a declaration of compliance pursuant to § 161 of the German Stock Corporation Act (AktG), which is published on the website at www.gfk.com. The deviations are as follows: The owners of the company passed a resolution on authorized capital at the Annual General Meeting on 13 June 2002 with a 98 per cent majority, which also included the exclusion of shareholder subscription rights. There are strict limits to this exclusion. The authorization is intended to give the Management Board the required flexibility to rapidly implement decisions for the good of the company and the owners. GfK is refraining from giving details of individual Supervisory Board and Management Board remuneration, shares and stock options in favour of an aggregate illustration split into Supervisory Board and Management Board. The information will be broken down into fixed salary and variable salary components as well as into portfolios of stock options and GfK shares. This information is given in the Notes to this Annual Report. The reduction in the timeframe for publishing consolidated accounts and interim reports is a priority for the Management Board and Supervisory Board. The Management Board has introduced measures to expedite publication of the documentation. Report by the Supervisory Board THE GfK GROUP The annual financial statements and the management report for GfK AG and the Group for financial year 2002 have been audited by Bayerische Treuhandgesell- schaft, taking into account the book-keeping, and provided with an unqualified auditors’ report. All members of the Supervisory Board received the auditors’ reports in good time ahead of the accounts meeting. The Supervisory Board plenum discussed these documents at length in its accounts meeting, as did the Financial Committee of the Supervisory Board at its preparatory meeting. Both these meetings were attended by the auditors who signed the annual and consolidated financial statements. They reported on the audit in general and on the key points stipulated in the audit mandate, and gave detailed responses to questions from the members of the Supervisory Board. 5 The Supervisory Board has noted the audit report and, following its own examination of the annual financial statements drawn up by the Management Board, has given its approval. The financial statements are therefore adopted. The Supervisory Board has seconded the proposal of the Management Board for appropriation of the profits. The Supervisory Board would like to thank the members of the Management Board, and the members of the Works Council, all GfK AG staff and the staff of affiliated companies for their hard work and commitment. Nuremberg 11 April 2003 Peter Zühlsdorff Chairman of the Supervisory Board T O O U R S H A R E H O L D E R S A N D B U S I N E S S A S S O C I AT E S We set our sights high in 2002 and are very pleased that we not only achieved our aims but even exceeded them: • We were able to achieve double-digit growth both in terms of sales and results and increased our EBIT margin after income from participations from 6.5 to Dr. Klaus L. Wübbenhorst Chief Executive Officer of GfK AG 8.9 per cent. • With net organic growth of 5.3 per cent, we once again achieved growth above the sector average. • We further expanded our global network in 2002, focusing on creating a solid foundation in the profitable growth market of healthcare. 6 • The growth achieved means that we are now ranked No. 5 in the worldwide market research sector. At the ordinary Annual General Meeting on 13 June 2003, the Management Board and Supervisory Board will propose a dividend payment of EUR 0.20 per share. This represents an increase of almost 18 per cent on last year’s dividend payment of EUR 0.17 per share, and a dividend increase of 54 per cent since our IPO. So these are the hard facts of our company’s success in 2002. Success like this is largely based on the commitment of our employees throughout the world, whose exceptional motivation and drive in these somewhat difficult times have made this positive development possible. Knowledge: the bridge to clients and consumers Chosen as the leitmotif of this year’s Annual Report, in which four examples of successful cooperation with clients demonstrate the importance of knowledge for industry, retail and media, in terms of the markets in which they operate and the consumers and users of their products and services. We show how • brand manufacturer Unilever uses market research to position its many global and regional brands in response to the changing requirements of Polish consumers. • British retail group Dixons uses market research to fulfil the expectations and demands of the purchasers of consumer technology goods and to stay ahead of the competition. Foreword by the Chief Executive Officer THE GfK GROUP • the new Radiocontrol metering technology developed by GfK helps radio stations, advertisers and media professionals to determine where, when, why and how people use radio today. • the owner of the most valuable brand in the world, Coca-Cola, uses market research to give it the edge over its competitors in terms of product quality, logistics, distribution and local marketing. In an interview, Michael J. Naples, one of the most prominent and committed personalities and experts in the world of market research, outlines how interesting and forward-looking our business is and describes the major challenges faced by the sector. 7 Corporate community: a driving force for future success Commercial success and cooperation with our clients constitute a cornerstone of our corporate ideas and actions. 2002 was a year of integration and co-determination for our employees in the GfK Group global network, with the focus on corporate culture and communications as well as social responsibility. Our initiatives have been very successful: • We adopted the Corporate Values developed by the Excellence team, a group of top young high-flyers at GfK. The values provide us with a clear, strong system founded on five principles which express how we understand our work and our role as a provider of intelligent solutions. • We implemented our new Corporate Design guidelines and revamped our logo to create a contemporary and unmistakeable brand image for GfK worldwide. • We launched our global Intranet, gfk4u, which helps our companies and employees to share their vast knowledge and expertise throughout the world as well as keeping GfK always a step ahead of the competition. • We were involved in scientific, cultural and social projects, such as co-structuring and financing a course at Erlangen-Nuremberg University; providing 10,000 advertising posters from four decades on permanent loan to the Germanisches Nationalmuseum and sponsoring the European Children’s Theatre Festival 2002. At the end of 2002, we also submitted a declaration of compliance with the recommendations of the German Corporate Governance Code in order to further strengthen your trust, as shareholders, in the GfK Group. Outlook: our aims for 2003 We have also set our sights high for 2003. We intend to once again outperform the sector in terms of organic growth, increase our margins and reinforce our competitive international position through innovation, quality and client focus. We intend to ensure that our employees worldwide have secure, interesting jobs and the opportunity to develop their talents. This will of course also benefit our clients, many of whom have cooperated with us for a great number of years. Our continued strategy for the future is to offer them all our knowledge, expertise and experience to help them remain successful in their respective markets. 8 We would like to extend our thanks to you, our shareholders, for your loyalty in these turbulent times of weak stock markets and change throughout the world, and for your trust in our work and commitment to all that we undertake. Nuremberg, 11 April 2003 Dr. Klaus L. Wübbenhorst Chief Executive Officer GfK. Growth from Knowledge THE GfK GROUP RENEWING OUR CORE MESSAGE GfK. GROWTH FROM KNOWLEDGE The letters GfK are much more than just a name. They represent a stamp of quality and at the same time convey our core message, which our clients worldwide associate with quality, innovation and professionalism. In 2002, we opted to redesign our logo and revise our Corporate Values with the aim of unifying the corporate network and reinforcing the GfK brand in preparation of future challenges. Our new logo – an unmistakable symbol of unity In recent years, GfK has grown over-proportionally quickly and considerably expanded its network. In view of this dynamic 9 growth, it was even more important to revise the corporate image to highlight the essence and significance of GfK. A clear identity is the prerequisite for credibility and trust. As part of the process of redesigning and standardizing its corporate image, GfK has also revamped its logo. The increased diversity of the corporate network required a symbol which would embody inner unity and stand out from competitors worldwide. At the same time, it should convey the identity of GfK in an abstract way. The new logo design had to meet high demands. It needed to be simple but powerful, clear and unmistakable. Given the variety of working approaches and cultures within the GfK network, this was a major challenge. Each of the business divisions and GfK companies has its own character and communicates using its own language and symbolism. But for all its diversity, GfK is one entity. And this is what the new logo, incorporating existing and new design elements, should convey. 10 GfK. Growth from Knowledge Our Corporate Values Client-driven Our people Our clients’ needs drive our business. People are our main asset. We continuously seek to better under- Development through training, stand our clients’ needs, improve all sharing ideas and sound experience aspects of existing research products, is essential to our business. Our offer innovative products and to people have the freedom to explore be an integral part of our clients’ and develop their talents and are information systems. Accuracy, empowered to achieve our common sound methodology, excellent client goals. We encourage and reward service, flexibility, timely delivery initiative, dedication and hard work. and cost effectiveness all ensure that Fairness, good communication and we meet and even exceed our clients’ working relationships at all levels expectations. We build long-term and locations are key to our success. partnerships with our clients, contributing to their success. GfK. Growth from Knowledge THE GfK GROUP Our Corporate Values Communicating our core message Growth from Knowledge, the central premise of the GfK brand advertised throughout the world, perfectly encapsulates almost seventy years of successful GfK history. It is a core element of our creativity, commitment and the future – both our own and that of our clients. The various aspects of the “Growth from Knowledge” message are contained in the recent Corporate Values, which summarize GfK’s strong points: client-driven, our people, innovation, global expertise 11 and local knowledge as well as growth. Growth from Knowledge and the new Corporate Values give each and every one of our employees the responsibility of proving the claims in their dealings with our shareholders. The actions of all our employees help to communicate the central message and associated values of our company. All our employees are GfK brand ambassadors. Innovation Global expertise – local knowledge Growth We recognize that investing in We respect and learn from local Profitable growth results in greater continuous innovation in both the business practices and cultures and opportunities. As individuals, teams process and the end product is a provide knowledge tailored to local and business units, we are aware of prerequisite to meeting clients’ needs. Our global network comprises the impact of our decisions and requirements. Our aim is to be at the international teams, tools and actions at all levels. We use financial cutting edge with our key business products to provide multinational and non-financial measurements activities. Clients’ needs, evolving clients with consistent services. As to review and improve performance markets, new technology and the proud members of the GfK Group, on an ongoing basis. Our growth expertise and ideas of our people we share local and international provides investors with a fair return throughout the world are what drive expertise to continually improve all on the financial resources they have innovation. aspects of our business. entrusted to us. Ratings measurements include digital TV channels in Germany for the first time AGF, the TV research partnership to which Majority holding in all the major TV stations Portugal in Germany belong, The Spanish subsidiary, commissions GfK EMER-GfK, tops up its Fernsehforschung 27.6 per cent stake in to include digital Portugal’s Intercampus programmes alongside to 50.01 per cent. its research into the Founded in 1990, the consumption of the company operates in analogue channels in the Ad Hoc Research the AGF/GfK TV panel division. in future. OVERVIEW OF 2002 01 02 03 04 05 06 12 Major media contracts GfK sponsors Acquisition of Consumer climate Licences granted for in Belgium and Austria Panoptikum – the Informark in Australia in Germany falls to Radiocontrol in Asia European Children’s record low and the Pacific With two major Acquisition of Theatre Festival contracts in Belgium Informark Pty Ltd. In April 2002, the pro- ACNielsen Media and Austria, GfK Australia, which pensity to buy indicator International acquires consolidates its position specializes in retail in Germany falls to its a licence to use For the second time, as the leading media research for consumer lowest point in 20 years Radiocontrol. A leading GfK sponsors GfK annual research organization in durables. GfK expands according to a media research company Panoptikum, the inter- conference 2002: Europe. The contract in its leading position in consumer climate in the USA and Asia, national children’s modern branding Belgium runs from the the non-food tracking survey carried out by ACNielsen Media theatre festival in start of 2002 to the segment in Australia. GfK for the European International intends At the 52nd GfK annual Nuremberg and end of 2008 and the Commission. The main to use the electronic conference on “Market Augsburg. contract in Austria from reasons for this are the measuring technology leadership – exploiting the start of 2002 to the Euro-inflation debate, developed by GfK and securing success end of 2004. Stake acquired in ongoing high levels of company, Telecontrol, potential”, GfK presents M2A, France unemployment and the for its radio ratings exclusive surveys on less than rosy economic research in 16 countries modern branding to GfK Belgrade GfK acquires a 35 per outlook. in Asia and the Pacific. 600 marketing experts founded cent holding in M2A, from all over Germany. one of the leading GfK launches its Guest speakers are providers of information business activities in Dr. Rolf Kunisch, services for the veteri- Serbia and Montenegro CEO of Beiersdorf AG, nary sector in France. through the newly Professor Dr. h.c. founded GfK Belgrade. Lothar Späth, CEO of The new company Jenoptik AG. is taking over the activities of Focus Marketing Research, the country’s third largest research organization. Overview of 2002 THE GfK GROUP HealthCare expanded in Germany and Switzerland The GfK Group takes Award for best over in full the business methodology Contract on Nuremberg poster operations of I+G presentation TV ratings research collection handed over Nürnberg and its in the Ukraine to the Gemanisches subsidiaries GPI Nationalmuseum Kommunikations- The speech on The Ukraine Industrial forschung and I+G “Assessing the financial Television Committee A ceremony is held to Suisse from the existing brand value” by commissions GfK mark the handing over joint venture I+G Siegfried Högl and subsidiary GfK-USM of a collection of Gesundheitsforschung Dr. Oliver Hupp, both to set up a TV panel in around 10,000 posters Strateji Mori with NFO Europe. of GfK, and Hamburg the Ukraine to measure worth EUR 1.6 million in Turkey GfK AG’s new HealthCare marketing professor audience ratings for by GfK-Nürnberg e.V. segment expands the Dr. Hendrik Sattler was The acquisition of Ukraine TV stations und the Nurembeg offering for information awarded the prize for Strateji Mori in Turkey and programmes. The Academy for Sales services for the medical, best methodology pre- makes the GfK Group contract starts in 2003 Research on permanent dental and veterinary sentation at the 2002 the market leader in ad and runs for an initial loan to the Germani- markets. ESOMAR Conference. hoc research in Turkey. period of four years. sches Nationalmusuem. 07 08 09 10 11 12 13 Significant acquired GfK sponsors market GfK sponsors the First client conference GfK Christmas card in Belgium information manage- Nuremberg marathon for Marketing campaign ment faculty Services, South Africa Acquisition of majority Around 7,500 local Christmas pictures holding in Belgium GfK-Nürnberg e.V., the people of all ages and Almost 100 clients from by the children at the based company majority shareholder in walks of life take part trade and industry state home for children Significant. This adds GfK AG, is providing in the Nuremberg attend the first client and young people in onto GfK’s services in EUR 384 thousand for marathon 2002. GfK is conference held by Reutersbrunnenstrasse the Media and Ad Hoc three years to the market one of the main spon- GfK Marketing Services in Nuremberg provide Research divisions and information faculty at sors and approx. 120 in South Africa. the creative input for puts GfK into the top the University of GfK employees and 15,000 GfK Christmas 5 in the industry in Erlangen Nuremberg, their families take part cards and around 5,000 New Corporate Values Belgium. which was established in the race. gingerbread tins, which for GfK in 1999 by GfK and the are then sent to clients University. The second GfK’s first Excellence and friends of the Acquisition of IFR sponsoring agreement Client conference Team made up of company. Group in France gives one or two gradu- in Australia on enter- selected next gene- GfK acquires a 51.4 per ates the opportunity to tainment ration managers has cent holding in Institut attend the MBA course been working on new GfK Australia presents Français de Recherche in market research at Corporate Values for special GfK services, (IFR) in France. The the University of a year. Following the products and innova- acquisition is a further Georgia in Athens near presentation to the tions in the entertain- step in GfK’s expansion Atlanta. Management Board, ment sector to some of the market leader- the values will be 200 guests. This is fol- ship of its Non-Food presented globally to lowed by the GfK Video Tracking division in the all GfK employees. Awards Night attended French market. by around 400 guests from TV, industry and commerce. BUSINESS DIVISIONS SPECIAL Knowledge: the gateway to customers and consumers Knowing and understanding the markets in which buyers, consumers and the users of products and services move can be the critical factor in deciding whether a company will prosper or fail in today’s marketplace. This applies to global market leaders as well as companies with a national, regional or local focus. Modern market research such as that conducted by the GfK Group, specializes in providing information on markets, buyers, consumers and users to its clients in commerce, industry and the services sector so that they can operate successfully in their markets on a long-term basis. An interview on the future of market research with an expert and four reports on the work of the GfK business divisions highlight how market research can support and complement an entrepreneurial approach. 14 Market knowledge Page for market success 16 Interview with Michael J. Naples Companies which operate successfully in their markets use a range of information on markets, customers and consumers. This information can be internal or external, from generally accessible or exclusive sources. The trick in market research is to produce customized information packages from a broad spectrum of different information using all the techniques and methods available today. In this interview, Michael J. Naples, one of the best known international figures in the market research industry, talks about the future demands on a market research provider such as GfK. GfK Business Divisions fK Zukunft der Marktforschung GG f K SSP E C II A L PEC A Page Consumer Tracking 20 Learning to think like a consumer Consumer research for Unilever Poland regarded as offering consistent quality, being reliable and of lasting value. The There was a rude awakening for Polish report highlights the difficult period of people after the consumer boom in the first change experienced by Polish consumers half of the nineties – including learning with regard to society and the economy. not to take the advertising promises of It shows how the management at Unilever brand manufacturers and retailers at face Poland is responding to this change and value. The most popular brands among how it uses market research to great effect. Polish consumers today are those which are Page Non-Food Tracking 28 Finding the answer to the second question Retail research for the Dixons Group as well as long-term, strategic decisions. in the UK The Dixons Group, Britain’s largest specialist consumer electronics retailer, The times when retailers acted on the basis began using market research to support of hunches and set up flourishing retail 15 its short, medium and long-term activities chains in no time are long gone. Today, back in the eighties. large retailers are dependent on all kinds of information about markets, competitors and consumers – in day-to-day business, logistics and short-term corporate planning Page Media 36 The listening watch Radio audience research for SRG SSR idée recall of radio programmes and stations suisse in Switzerland listened to, the details of which are then recorded in a diary, participants of The future of SRG SSR idée suisse’s radio the radio reach survey carried out by audience research began in 2000, when SRG SSR and its subsidiary Publica Data it was the first global media company to wear a wristwatch which records all decide to record radio reach electronically. radio/TV sounds in the wearer’s environ- The Radiocontrol metering technology ment 24 hours a day. developed by GfK subsidiary Telecontrol made it all possible. Instead of relying on Page Ad Hoc Research 44 Providing moments of refreshment to people – everywhere at any time Customer satisfaction research The Coca-Cola Company. This is brand for Coca-Cola in the USA policy at its best. In addition to consistently high product quality, there are also other Coca-Cola has been the world’s most quality criteria which affect production, valuable brand for years, and with good distribution and marketing. The CLASS reason, as there is no other soft drink customer satisfaction survey carried out drunk as frequently. Four out of the five with bottlers in the USA gives weight to most frequently consumed soft drinks in the mission statement of the top brands of the world are produced using syrups The Coca-Cola Company. and concentrates manufactured by Market knowledge for market success Interview with Michael J. Naples on the future development of a sector driven by client requirements Michael Naples, one of the most prominent figures in the international market research industry, describes how research has changed to meet the needs of users. employed professional market researchers, developing a large number of techniques that Michael J. Naples are still in use today, and they also trained a is President of the Marketing Research lot of good research specialists. Institute International at the University of 16 Georgia, Athens, Georgia, USA, which So when did the fundamental change take offers distance learning courses in market place? research worldwide. The institute is backed by several organizations such as the The next era in market research began in the American Marketing Association, the 1960s. Perhaps I can explain the reason with a Advertising Research Foundation and the personal example of my own. At that time, I was European market research association, Head of the Advertising Research department ESOMAR. at the US company Lever Brothers, responsible for the food, personal care and household care segments. One day I found that we were employing four different ad agencies to do our copy and advertising tests. They were undoubtedly all What do you believe have been the main first-class agencies, but each of them had developed landmarks in the development of marketing its own advertising test. What is a client like Lever and market research? Brothers supposed to do if four different agencies Systematic marketing and market research all say their test is the best? So along with Lever did not really become important until the early Brothers, all the big advertisers began doing their 1950s, when brand manufacturers such as own market research. Each wanted to find out Procter&Gamble and Unilever were expanding for itself what was valid and reliable in terms of rapidly. That was when meeting consumer effective marketing. At Lever Brothers, we had needs became the mantra of marketing around 30 people developing a differentiated companies. portfolio of product development, advertising and consumer research tests. It stayed that way until » Market researchers are increasingly having to breathe the 1970s. in the same way, move at the same speed and speak the same language as their clients. « When did market research companies come onto the scene? The initial impetus for the growing demand for At some stage, brand managers started to focus consumer and market data came from advertising on costs, and in the 1980s we saw a lot of agencies and companies’ in-house advertising re-engineering and job cuts as American and departments that dealt with all marketing issues. European companies tried to restructure and They maintained large research departments and become more productive. In-house market research departments were no exception; they Market research sector GfK SPECIAL About Michael J. Naples From 1981 to 1996 , Michael J. Naples market research sectors. The ARF honoured specialist articles and several books on was General Manager and President of him by creating the Michael J. Naples the subject of advertising frequency and the Advertising Research Foundation in Leadership Award for excellent entre- advertising effectiveness. Princeton-born New York, which, during his time there, preneurial achievement, which is awarded Naples began his career at the Lever he turned into the biggest international every two years. In addition, Michael Brothers Company, working his way up specialist association for companies Naples is a leading light in American market to Marketing Research Director. operating in the advertising, media and research. He has published numerous became a lot smaller, and the research industry profited from this. It grew mainly because it took on more and more work previously done by clients, particularly brand manufacturers. The number of people employed in in-house research departments decreased, and the focus of their work was different from that of people in market research companies. How would you describe the brand industry research situation today? 17 These days, most in-house marketing research managers are no longer responsible for all areas of the company’s business. They are part of the marketing team for a product area, so they are more involved in day-to-day business than they used to be. Their access to information has also grown enormously. In the old days at Lever Brothers, we used to get market share data for our products every two months. They were the basis for our business decisions. Today they get new information every week, sometimes every day, always tailored to their particular area of marketing and systematically collected. The traditional market research spectrum includes information on credit card holders that can be information on product sales, causal analysis collated and analyzed using data mining to gain of sales fluctuations, standardized advertising and new knowledge about consumers. It can be trans- concept tests, analytical models of the mix used ferred to any type of information a company has in complex ad campaigns, continuous advertising about its customers and markets. Using all these tracking, customer segmentation studies and modelling analysis, experimental market tests and model analysis used to optimize brand value and » It was the information needs of increasingly allocation. There are countless highly developed, global brands that triggered globalization in the effective and useful tools for market and media market research industry.« research. tools to gain knowledge that can be used to There are also lots of new instruments used to manage a business and take decisions is one of the prepare information. Take data mining, for main challenges facing today’s market research example. Companies like American Express have and information directors. It is no longer about using individual research techniques for this or that purpose; that’s routine. It is about cleverly combining all the available information to In the 1950s, each survey was a new project. make decisions which make the company more Today, that is no longer the case. Instead, a client competitive and innovative. of a professional market research organization has access to a large volume of market data. These days, if you want to market your products success- Would you go so far as to say that is the only fully in a competitive environment, you need thing market research will concentrate on in a full range of information from internal and the future? external databases, and data obtained exclusively for you. That is the key. The art of market research I wouldn’t go that far. Apart from support for companies lies in developing specific approaches strategic business decisions, there will obviously for each client, using the techniques currently still be the traditional routines. Ideas, products available on the market. Basically, market and advertising campaigns will still need to researchers are increasingly having to breathe be tested. There will always be test markets, in the same way, move at the same speed and consumer surveys and qualitative interviews. speak the same language as their clients. » I believe that market research has always been a pioneer in the use of technology. It has been in the What impact has globalization had on vanguard when it comes to using portable computers, market research? call centre technology and the Internet to canvass Firstly, I believe that the question of whether consumer views.« globalization is good or bad is not important. 18 I see globalization as being a fact of life – with all But it is also about using strategic information its positive and negative aspects. Even ten years based on existing data for the long-term develop- ago it wasn’t a major issue, apart from for a few ment of the business. A forward-looking in-house companies such as Coca-Cola or Levi. In those market researcher combines traditional research days, they were the only ones to commission skills with management talent and an entre- large numbers of surveys and use mainly market preneurial attitude. He can only do that by having research companies to carry out international specialist skills that go beyond the everyday and research in lots of different countries. contribute to the company’s strategic value. It wasn’t until large numbers of American and European companies began operating on an What changes have there been in the international scale that they began needing more expectations of clients? international market and consumer analysis. It was the information needs of increasingly global Of course there has been significant change here too, because clients have become more demanding. They want market researchers to provide precise, timely information that is tailored to their needs and allows them to think ahead and decide in advance what their objectives are. And they take it for granted that researchers will understand the client’s business. It is important for clients to trust the market research companies they use, which means they are working with fewer of these companies than they used to. Market research sector GfK SPECIAL brands that triggered globalization in the market Modern technology plays a critical role in this research industry, because research companies process. Market research has always been, invested in globalization to meet the needs of brands. and always will be, an industry which gains much of its impetus for growth and innovation Today, the world’s 25 biggest market research from the development of new information organizations generate 65 per cent of the industry’s and communication technology, and plays a USD 18 billion turnover. This is impressive evidence trailblazing role in its use. This applies not just of how much market research has been affected to the instruments and media used to collect by the general process of globalization. Big research and process data, but also to the exchange of companies still have to do everything in their information, both internally and with the client. power to assert themselves in the face of inter- national competition. 19 » Managing information relevant for decision-making requires both an ability to process and correlate How much of a role has technology played? a large quantity of very varied data, and a profound The fact is that technology has contributed to the understanding of business.« growth of the market research sector, perhaps more so than in other industries. It has made Globalization and technology are dramatically the business easier, both in terms of collecting, changing our clients’ businesses as well. analyzing and developing data, and of the new Their markets have become more complex, fast- forms of communication and networking which changing and competitive. Market information for have provided major support to the business short-term and long-term business decisions has worldwide. I actually believe that market research become a crucial factor of production. Managing has always been a pioneer in the use of technology. this information requires both an ability to process For example, it was the first segment to use super- and correlate a large quantity of very varied data, market scanner technology for more wide-ranging and a profound understanding of business. Both information purposes. It has been in the vanguard clients and market research companies have a when it comes to using portable computers, call growing need for people who are able to do this. centre technology and the Internet to canvass This mixture of research and consultancy means consumer views. they have an essential part to play in clients’ decisions. Clients’ information and market research managers are supported by their colleagues What do you think will be the key issues in market research companies with a wealth in market research over the next ten years? of methodological knowledge and customized The trends I’ve just mentioned will continue, and information services. This is a long-term the globalization process within the industry is not relationship based on the principle that market yet complete. But in addition to an “expansive” researchers are working exclusively to achieve globalization of company networks, we are also market success for their clients. going to see an increasingly “qualitative” form of globalization, towards ever more sophisticated and globally-usable tools and services and more comprehensive and high-performance knowledge systems. 20 Consumer Tracking GfK SPECIAL 21 Learning to think like a consumer How consumer attitudes and needs changed in Poland when the iron curtain came down and why brand manufacturer Unilever uses market research in its approach to this change in Polish society. GfK Polonia: research for Unilever Poland Learning to think like a consumer There was a rude awakening for Polish companies after the consumer boom: in the first half of the nineties consumers grew up and became sceptical and at the same time their buying power dwindled. With the help of professional and imaginative market research, Unilever Poland is transforming its marketing to suit the new market conditions. Managers from Unilever Poland hastened to take part in a “real adventure”. Far away, in the smaller and smallest towns of the 16 provinces, far from the shelter of their own offices and the excitement 22 of life in the great metropolis, Warsaw, they were due to spend four weeks as citizens among citizens – without gold credit cards, mobile phones, cars and all the other paraphernalia of the five per cent of the population making up Poland’s top earners. On the contrary, under the guise of being related to local citizens, they had to manage on the average income of a normal Polish small-town household and experience for themselves, how to Ana Gisa deal with the array of consumer products on offer Ana Gisa, Head of Consumer Insight/Market Research at on just a handful of zlotys. Unilever Poland on the change among Polish consumers: “Consumers will no longer be bamboozled. They have The project was one element of a strategy pro- stopped chasing the dream.” gramme launched globally in 2000 under the title “Path to Growth”, which gave the management the necessary intelligence to successfully position Unilever brands in the Polish market. The pro- Looking for a life with dignity gramme included two-day visits to families in the Ana Gisa, consultant to the Management Board furthest corners of the country, as well as excur- and Head of the Consumer Insight/Market Research sions during which current knowledge of regional department at Unilever Poland, sums up: “Target problems and peculiarities, including historic and groups can only be correctly addressed if the economic developments, could be absorbed. Time marketing people know and like them and if and again, the Unilever “emissaries” sought to they don’t deal with them from their high horse, speak to consumers in order to “see the world we without having even the slightest idea of how share through different eyes”, as one participant the average person lives.” As Gisa says, they, too, recalls. In Poland, premium brands are on the increase despite the recession. Consumers appreciate their consistent quality and lasting value. Consumer Tracking GfK SPECIAL Entrance to one of Warsaw’s many hypermarkets are looking for a life with dignity, even if the circumstances are difficult. Poland is currently battling against high unemploy- ment: around 17 per cent of the 38.7 million population has no job. At USD 3,200, the annual income per capita is very low compared to the German figure of USD 28,500. Initially, the mood of change was exuberantly positive, even leading then President Lech Walesa to dream that Poland might become a second Japan in the early years A surfeit of after the revolution. As Ana Gisa puts it: “Everyone 23 products means was happy and looked towards the future with a that competition great deal of confidence,” adding: “Because of this among brands is dream, at first, consumers were unconcerned fierce. about spending money.” In actual fact, at the beginning, people were simply hungry to consume. It was as if paradise beckoned after all those years behind the iron curtain and the times when they could only dream about Western brands and shopping. However, the critical assessment of the Unilever market researcher is that: “This was also a time characterized by a complete loss of touch with reality. People spent all their money including savings, believing that in two or three years, their salaries would rise to that is that we suffer from a certain lack of rational match their consumption. We believed ourselves logic,” as Gisa explains. to be the future “Tiger economies” of the world, They were completely clueless and defenceless comparable with those of Asia”. in the face of the new brand universe, which was being established and promoted by companies The end of the dream of endless consumption according to the Western model. It was difficult to keep pace with developments and then some time Many foreign companies also believed in the later, the consumer said: “Right … I’ve had enough! dream and opened subsidiaries in Warsaw, Lodz, All I want is ordinary detergent. I have no idea Krakow and elsewhere. For example, 20 retail what they are talking about and what they mean.” chains alone have a presence, which economic experts believe is at least twice too many, despite the fact that Poland is a big market and a gateway » The GfK ConsumerScan panel is the only source to Russia and the Ukraine. which can tell us who is buying our products.« As early as 1996, the chasm between the pace of These insights and the economic crisis in Poland economic growth and private consumption had and other Eastern European countries ushered in already opened up. Consumers were living on the second phase of consumer behaviour. Huge credit without a care in the world, as a conse- rafts of the population became impoverished, and quence of a pent-up need to consume and also the overheated and over-funded consumption the characteristic that “we Polish consumers have in common with other Eastern Europeans and Quality of life is what Polish people want and what dropped back to a realistic level. Gisa reports: become a very high level of interest: 27 per cent of premium brands “People suddenly understood that not only they, Polish households had taken out loans to buy can offer. but their children would not benefit from the cars, refrigerators and other desirable top grade changes as they thought they would and that consumer products. These factors now determine 24 paradise was not just around the corner. It was the marketing policies of Polish companies, in a the phase of disenchantment, when you simply landscape beset by other incidentals like price had to accept that after all, you were just a frog, wars, often triggered by the international retail and not a prince.” chains deeply embroiled in fierce competition, and growing scepticism on the part of consumers towards branded goods, which is a global problem. Honest information rather than mystification Ana Gisa sums up: “Consumers have become Now people are fighting to maintain their standard far more rational, knowledgeable and clever. of living and their dignity. They are much more demanding, even in respect Whilst not wishing to be counted as poor, they are of advertising, for example. They do not want nevertheless confronting reality. For companies, mystification, but honest information. This was the this means a massive fall in private demand, due second phase, which according to my assessment to consumers having less money to spend. Many lasted from 1998 to 2000.” need the money to pay off what has meanwhile Using data for ongoing market monitoring Gisa has been observing people on the markets, who have developed product loyalty, and who no longer try everything and anything that comes onto the market. Premium brands in which consumers have developed a certain trust, are still showing growth rates frequently counted in double figures, despite the recession. Gisa elaborates: “The crux of the matter is consistent quality, honesty and really giving people something of lasting value. People won’t be bamboozled now and are not chasing the dream any more.” Agnieszka Sora In markets like this, market research is among the Agnieszka Sora is GfK Polonia’s Managing Director. For most important instruments at the disposal of many years, the company has been supplying Unilever marketing management when they are deciding on with comprehensive information on consumer behaviour the right products and the right positioning. This in Poland, collected from the ConsumerScan Panel. is the reason why the demands on market research organizations are high and why Unilever is one of the biggest clients of GfK Polonia in Warsaw. Consumer Tracking GfK SPECIAL Brief overview: Consumer Tracking Consumers, brands and markets in the spotlight Key services Service details • Development and trials of ECPO (Electronic Consumer Panel Information services, advice and GfK ConsumerScan: consumer Online), a system for recording solutions providing support for panels on fast moving consumer purchasing data via the Internet the marketing decisions of brand goods in 24 countries; like panels manufacturers and retailers in in 15 other countries, these belong • Addition of 1,000 households, the the consumer goods and services to the Europanel run in conjunction heads of which are non-German sectors. with Taylor Nelson Sofres. residents, to the GfK ConsumerScan panel in Germany GfK ConsumerScope: online and Our offering mail panels for consumer goods and • Above-average positive develop- services in nine countries ment of category management Information about consumer habits business and advice based on continuous GfK CatmanGuide: service system surveys and analyses of consumer for category management of FMCG • Reinforcement of European buying behaviour in household directly at the point of sale. integration of the Europanel and individual panels. Panel managed together with Taylor 25 participants keep a regular record of Nelson Sofres The advantage for clients their purchases over long periods. GfK collects the information from • Improvement and harmonization Clients use partly standard, partly the households, processes and of reporting to international customized information packages to collates it according to the clients’ standard in Europe monitor and manage their tactical requirements. and strategic decisions on product • Advancement of cost-cutting and pricing policy, distribution and programme Clients receive comprehensive category management, advertising information packages and promotional activities. The • about changes in purchasing consulting services offered by our Positioning behaviour with regard to team of client advisors support GfK Consumer Tracking ranks 2nd in manufacturer and retail brands clients in their decision-making. Europe, in terms of business volume, in all relevant product categories in the area of continuous consumer and buyer structures over time, research and No. 1 in Austria, The clients also on brand loyalty and shopping the Benelux countries, Germany, outlet preference, Large multinationals as well as Italy and Switzerland as well as SMEs and companies operating in other Central and Eastern European • about the effect of changes in the consumer goods and services countries. pricing policy, promotional and markets. Our top clients include advertising activities on sales Henkel, Unilever, Procter&Gamble and core brands. and Nestlé. The aTRACKtive software developed by GfK for the specific purpose of analyzing consumer panel data Highlights in 2002 enables users to prepare numerous • Europe-wide rollout of the special in-depth analyses in addition aTRACKtive software used by GfK to standard reporting. and clients for panel analyses • Upgrading of the Internet platform aTRACKtive.web, via which clients have direct access to consumer panel databases Unilever brands are everywhere – from corner shops to retailers and hypermarkets, everyone sells them. Gisa continues: “Like anywhere else, we need Sensing what the consumer is thinking continuous data gathering here in Poland, because For Ana Gisa, of all the marketing activities a this is the only way to monitor our performance company may engage in, category management and what is happening in the markets.” She goes has a key function. Her interpretation of this is on to stress the particular significance of GfK to identify the way in which products should be ConsumerScan for Unilever. The Group uses the displayed and organized in a retail store in order ongoing data sources to inform its decision- to be consumer-friendly and to help consumers making processes: “We check whether purchasing make satisfactory buying decisions. She is is still at the same level and this gives us the convinced that in Poland, the large supermarkets information to forecast our market share. And of are still extremely consumer-unfriendly. For example, 26 course, this also affects pricing policy. The retail anyone wishing to buy salt has to embark on a panel data tells us how much we have sold and hugely convoluted journey of discovery to find it, the GfK ConsumerScan panel is the only source simply because it is in a totally illogical place from which can tell us who is buying our products.” the consumer’s point of view, i.e. with the spices. Consumers do not regard salt as a spice. Gisa » Consumers have become far more rational, believes category management can identify what knowledgeable and clever. They are much more the consumer is thinking when he or she is demanding, even in respect of advertising, for shopping and this information can be used to example. They do not want mystification, but develop the right presentation for every category honest information.« of goods. All useful information, as Ana Gisa confirms, Unilever which can be intelligently interpreted and used for much more than forecasting market share. A leading provider of FMCG brands and products Beyond standard reporting, as a client of worldwide GfK Polonia, Unilever is also interested in special Established in 1930 following the merger of British Lever surveys, which can be rigorously applied for Brothers and Dutch Margarine Unie short-term planning and category management Mission statement in the case of retail groups. “Our purpose in Unilever is to meet the everyday needs of In fact, this is at the heart of the cooperation people everywhere – to anticipate the aspirations of our between Unilever and GfK Polonia. Gisa gives the consumers and customers and to respond creatively and competitively with branded products and services which raise reason as the fact that the survey results enable the quality of life.” Unilever managers to give optimum advice to retail chains, by revealing the segments in which Reach and image they are weaker than their competitors and the Every day, consumers around the world buy 150 million product groups in which their customers are going Unilever products. to other outlets. However, the survey results also According to a Financial Times survey carried out in 2003, help Unilever by identifying important consumer Unilever is the most respected company in the food and facts, such as preferred pack size. beverage sector. Divisions and key brands Best Foods with the brands Becel, Bertolli, Liptons, Hellmann’s, Knorr and Magnum ice cream Home and Personal Care with the brands Axe, Dove, Lux, Ponds, Brilhante, Skip and Omo. Consumer Tracking GfK SPECIAL GfK Polonia not only delivers raw survey data, Market research for on-target marketing but also complete analyses. Gisa adds: “GfK Unilever’s market researcher would like an employees have much better specialist knowledge even closer working relationship between the in these matters and are able to generate value market research institute and the client. Because added, for example, by contacting Nuremberg and markets are growing hardly at all in Poland, even consulting their colleagues, so that they achieve shrinking in terms of value in many cases, only results of much greater breadth and depth than we highly professional market research can help the had originally assumed. They have ideas and their marketing effort to achieve Unilever’s ambitious international focus means that they can bring in growth target. helpful standard technologies and processes.” » Because markets are growing hardly at all in GfK Polonia Poland, only highly professional market research can help the marketing effort to achieve ambitious The No. 3 Polish market research institute; offers services in growth targets.« all GfK divisions Established in 1990 as the first non-Polish private research Ana Gisa’s contribution to the recipe for success is institute in Poland getting to know the consumer and what he or she Key clients: in addition to Unilever, Henkel, Kraft Foods, wants better than anyone else. She sees her remit L’Oréal, Nestlé, Procter&Gamble, Reckitt Benckiser, of analyzing social processes as verging on con- Renault sumer psychology. “Analyzing the social develop- 27 Key markets: automotive, financial services, FMCG, ments which impact on consumers provides us healthcare/pharmaceuticals, retail, IT, media, telecoms with a broad overview of all the possible consumer and transport phenomena which might be encountered today.” 100 employees, 700 interviewers; own telephone and test studios. This is why Unilever managers went out to the people as part of the company’s strategic “Path to Growth” campaign, in order to use the opportunity Angieszka Sora, Managing Director of GfK Polonia, of daily dealings to learn all about their joys and is pleased to hear this praise, but also knows that sorrows in the private sphere. According to Ana there is a very special reason for the fortuitous Gisa: “Those who took part learned a great deal cooperation with Unilever: “Ana Gisa is always and came back as changed people.” open to new ideas. For instance, when we offered her consumer analysis along the lines of the German model, which we had carried out on our own initiative, she showed immediate interest. She encouraged us to do the same in Poland.“ In urban centres like Warsaw and Krakow, Polish history and modern consumerism happily co-exist. 28 Finding the answer to the second question How the Dixons Group, the largest consumer electronics retailer in the UK, uses market research to meet consumer expectations and requirements and stay ahead of the competition. Non-Food Tracking GfK SPECIAL 29 GfK Marketing Services UK: retail research for Dixons Finding the answer to the second question For years, the retail sector was run by entrepreneurs who made decisions on the basis of hunches, and it was relatively easy to enter the market and be successful. But today, in the face of competitive pressure, virtually interchangeable products, price wars and increasingly well-informed consumers, retail managers have to use highly professional marketing based on comprehensive market research data. One striking example is the cooperation between British retail group Dixons and GfK Marketing Services UK. John Clare knows how to make a virtue out of necessity. At a time when retailers are all selling 30 the same brands and the same products at more or less the same prices, he needs to be guided by a very specific business philosophy. And as Chief Executive of Dixons, the British retail group specializing in consumer electronics, photographic equipment, telecoms, computers and software, his philosophy is give the customer what they want. » The different positioning of our store chains John Clare reflects the complex ways in which people John Clare is CEO of the largest specialist retail group in the UK, view the apparently simple concept of customer which has ten brand names in eleven European countries service.« with 1,280 sales outlets comprising a total sales area of approx. 1 million m2. He describes it in simple management terms: Clare’s philosphy: current market and consumer information “We want to offer our customers unsurpassed is a must in day-to-day business, operational planning and for benefits in terms of the breadth and quality of long-term strategy. our product ranges, competitive prices and high standards of service.” This is based on comprehensive expertise gained from market Different service for different customers research data, and an awareness that the word “service” means different things to different The electronics market in particular consists of customers. “If you’re going to create differences an incredible range of competing products and between yourself and the rest of the market, you systems, aimed at customers with widely varying can’t just focus on price,” Clare says. “You also levels of knowledge and information needs. Dixons have to look closely at other aspects of customer therefore operates carefully differentiated store expectations, and that means you have to start chains in eleven European countries, including creating customer segmentation.” four in the UK alone, employing some 33,550 people in 1,280 stores and generating sales of Non-Food Tracking GfK SPECIAL Three of the specialist retail chains in the Dixons Group, all market leaders in the UK and Ireland around EUR 7.4 billion. All follow the same basic precept that different customers want different levels of service. Currys, for example, has become Britain’s largest retailer to specialize in TVs, hi-fi, cookers, refrigerators, washing machines, PCs and telecoms. “Currys sells consumer electronics to customers who need a great deal of validation for the purchases they make,” says CEO John Clare. “They need support, and they want reliable products and after-sales service where someone 31 installs the appliance for them and explains in Ian McCann detail how it works. And they also want to be sure that someone will come and help them if Ian McCann is Managing Director of GfK Marketing Services anything goes wrong. Currys’ unique selling UK. The Dixons Group is one of the largest retail companies in the UK and it was on their initiative that the GfK company proposition is that it does this.” was established in the UK. GfK and the retail giant exchange The Dixons chain offers a similar range of high- the latest retail information on a daily basis. tech products – but to a very different kind of customer. Clare says it sells technology to people with an almost professional interest in matters technical. They don’t care where they buy the Question one is always “How much is it?” product, as long as the sales staff can tell them Customers of PC World, the Dixons Group’s third exactly how the technology works, what it does chain of stores, are true technophiles. “These and whether it is compatible with the products people have even more specialist knowledge than they have already bought. Dixons customers. They’re real enthusiasts, and fifty per cent of them come from small businesses. Dixons in Oxford Street, London, the top address for consumer electronics, digital photographic equipment and IT Oxford Street in London, a shopping street which records some of the highest So PC World targets the business-to-business Clare is therefore under no illusions about the retail sales in the world. and very highly informed business-to-consumer main reason why consumers decide to buy from Five Dixons Group outlets markets.” Clare thinks this is his company’s big a particular store. “The answer is always where can be found here. advantage compared to key rivals, who sell by mail you can get the item cheapest.” Once they’ve 32 order, the Internet and direct distribution. “With compared prices and realized that the product us, the customer can talk to an expert face-to-face, costs almost the same wherever they go, they then and then take the items straight home with them.” ask what they regard as the second most important The Link is Dixons’ fourth UK store brand, specializing in mobile phones and communica- The Dixons Group tions products and established in 1994. It provides Leading retailer of consumer electronics and associated after-sales service and offers a wide choice of services in Europe, present in 11 countries products, whereas other British mobile phone operators are often limited to a single service Established in 1937 by Charles Kalms as a photographic business provider. Dixons’ more broadly targeted concept seeks to get away from this, and it is working: Mission statement The Link is one of Britain’s fastest-growing mobile “Through all our brands we aim to provide unrivalled value phone providers. to our customers by the range and quality of our products, our competitive prices and our high standards of service.” » Only when customers have compared prices and Specialist retail chains in the Dixons Group realized that the product costs almost the same Market leaders in the UK and Ireland wherever they go, do they ask what they regard as Dixons: consumer electronics, Currys: household appliances, the second most important question.« PC World: computers and peripherals Dixons’ specialist stores “All the stores in our Group, and most of our PC World Business: PC wholesalers, The Link: electronic communications products and accessories, Mastercare: competitors, sell the same products and brands,” distribution and after-sales says Clare. This means that whether they sell Sony televisions, Compaq computers, JVC hi-fi systems Outside the UK Elkjöp in Scandinavia, PC City in France, Spain & Italy, or Siemens washing machines, or comparable Electro World in Hungary, Uni Euro in Italy and Kotsovoloa products made by other manufacturers, retailers in Greece and Czech Republic have no opportunity to carve out a niche for themselves. But consumers regard these as More than 35,000 employees in 1,280 sales outlets with almost 1 million m2 sales area expensive purchases, similar to a car, a house or a holiday. Non-Food Tracking GfK SPECIAL Brief overview: Non-Food Tracking Innovative services for the markets of the future Key services In addition to market-related • Continuation of rollout in Europe information services, our offering of ENCODEX services designed Information services regarding includes ENCODEX, the software for the B2B e-commerce segment. marketing, sales and logistics in and item catalogue, which is a Encodex currently has a catalogue retail and industry for companies B2B e-commerce platform. of around 100,000 products in operating in consumer technology 100 consumer durables categories, markets. enabling trade and industry to The advantage for clients conduct transactions online. Our offering Clients have direct access to Clients new to the system in 2002 databases and receive regular include Groupe Référence, which Regular reports based on continuous has more than 550 stores in standardized analyses which surveys and analyses of sales France, Ring Photo, which has are used to track and manage development and product-related over 2,600 stores in Germany, short, medium and long-term characteristics for consumer Euronics, which has more than planning on product and pricing durables at the point of sale. In 600 stores in Spain and 700 in policies, advertising, distribution, addition, we offer special analyses, Italy and Dixons. 33 sales and logistics. in particular of new products and new markets. The clients Positioning GfK works with all the major retailers in 44 countries worldwide and the Manufacturers in the consumer tech- The Non-Food Tracking division information is generally supplied in nology sector such as multinationals, is the market leader for services electronic form. SMEs and large companies operating relating to unit sales data on at regional and national level, as consumer technologies in Europe, All the market-relevant product Asia and the Pacific as well as in well as retailers. Our top clients and technical features of the the Middle East and, in conjunction include Carrefour, Hewlett Packard, various models and items are with the US company NPD, in the Matsushita, Metro, Samsung and categorized and collated with the USA. Sony. sales-related information on the S*T*A*R*T*R*A*C*K database. Highlights in 2002 We track consumer technology markets such as consumer • Acquisition of majority stake in electronics, IT (hardware and Institut Français de Recherche software), telecommunications, (IFR). Founded in 1974, the household appliances, photographic, French company collects data optical and lighting, DIY and on retail prices and supply building materials, healthcare and structures for products in the medical devices, toys, sports and field of consumer electronics and leather goods. IT in fourteen different countries in Europe question. “This question will be quite different In the world of the for different people,” Clare explains. “The different consumer, price is a top priority, but there positioning of our store chains reflects the are others ... complex ways in which people view the apparently simple concept of customer service.” Data also needs to be understood Dixons managers use daily and weekly market research data at every level of the business, to The key success factors for today’s retailers are provide the Group and its managers with the charging the right price at the right time, and up-to-date input they require. For example, Clare providing each customer with the optimum level needs to know on a daily basis whether his rivals of service. Both of these require a precise and are changing their prices, and if so by how much, up-to-date knowledge of the market, and of often so that he can decide how the different Dixons fast-changing consumer attitudes and habits. chains should respond. “As soon as our competitors Retailers in particular have to contend with a change their prices, we have to change ours seemingly endless stream of figures as they deal as well – and this usually happens within the with more customers, employ more people, make hour.” more sales and sell more products. “But you can have lots of data at your fingertips and still not understand what it means,” Clare says. “And that’s Continuous market research why we’re working with GfK.” In turn, competitors respond to Dixons’ price changes, which have implications for sales of the » Dixons managers need to know on a daily basis products and brands concerned. GfK provides whether their rivals are changing their prices, and if Dixons with weekly and monthly retail data and so by how much, so that they can decide how the consumer survey results as the basis for decision- Dixons chains should respond.« making. 34 “I need the very latest information available if Ian McCann, Managing Director of GfK Marketing I’m to take decisions like whether I can afford to Services UK, recalls that his company began increase the price of a product in one chain, cooperating with Dixons in the 1970s on house- and whether I can also do so in another. Which hold and consumer panel data. They faced many groups of customers are likely to react in what difficulties, because in those days few British ways? And what’s the best action to take? retailers understood the value of professional I might decide to revise the price at Currys but market research or wanted to take part in panels. not Dixons, or at Dixons but not at PC World. “Eventually, because of their strength in the “This is a very hectic business when it comes market, Dixons and a few other large retailers got to pricing policy, especially between about 7.00 their way. We started the electronic appliances and 8.30 each morning when we find out our retail panel in the early eighties, and over the competitors’ prices.” years we’ve expanded the number of markets Retailers already know we monitor. Our surveys for the Dixons Group Market research data is used to support not only that price is a crucial factor. now cover the majority of their sales.” short-term decision making, but also long-term For Dixons, the second strategy. For example, Clare has to make important question is key. decisions about which products to sell and where to sell them; these determine what is sold, and in what quantities, for a whole year. “I need all the available market data if I’m to make forecasts and say how the market is developing.” Clare combines the results of market research with information he receives from suppliers: what new products they are planning to bring out, and what forms of technology they will be using. The aim is to decide what the different product ranges should look like if the various Dixons chains are to consolidate and expand their position in the market. Non-Food Tracking GfK SPECIAL The customer is king! Establishing what customers want is the domain of market research – and this is where GfK reigns supreme. But that’s not all Clare uses market research for. The formula for success: a bit of luck, and a lot He also has to make capital-intensive business of planning decisions concerning the individual chains’ This has not always been the case; like many medium-term and long-term development. To do other leading retailers, Dixons used to be run by this, he mainly needs information about consumers big-name entrepreneurs who operated on instinct. and the market share of brand manufacturers, In the words of the founder’s son Stanley Kalms, broken down by retailer and by catchment area. the company initially worked on the basis of And finally, he needs to know all about the other “fortune smiling on opportunity”. But Clare, who European countries into which Dixons has already joined Dixons in 1986 and has been Group Chief expanded – Czech Republic, Denmark, Finland, Executive since 1994, says there is another element France, Greece, Hungary, Iceland, Ireland, Italy, 35 at work. “I think that luck and chance are still Norway, Spain, Sweden – and those where the important factors in Dixons’ success – luck always Group could set up other chains in the future. has a role to play. And creativity, adaptability and “GfK data helps us at every level: daily and monthly activities, annual budgeting and long-term strategy,” agility as well. But there’s also a need for very stresses Clare. careful planning – and producing market data is a part of that.” GfK Marketing Services UK, » GfK data helps Dixons at every level: Surrey, UK daily and monthly activities, annual budgeting Operating in the Non-Food Tracking division, GfK Marketing and long-term strategy.« Services UK is a leading provider of retail information services relating to consumer electronics markets in the UK. Last but not least, Clare’s decisions are based on Established in 1984 on the basis of co-operation with the information about consumers. As the competition Dixons Group and other British retailers. becomes fiercer and products are sold in more and Key clients include: Black & Decker, Electricity Association, more different ways, so it becomes increasingly Electrolux, ICI Paints, JVC, Kodak, Merloni , Panasonic, Sharp, important to provide the right answer to the Sony consumer’s second question – the one they ask after finding out how much the product Key markets: consumer electronics, DIY, furniture and costs. home furnishings, gardening, information technology, office supplies, photographic and optical, utilities, household appliances, telecommunications 179 employees Recording of retail data in cooperation with retail partners 36 The listening watch How the electronic measuring device, Radiocontrol, has been showing radio stations, advertisers and media professionals in Switzerland where, when, why and how people today are listening to the good old radio Media GfK SPECIAL 37 IHA-GfK, Switzerland: radio audience research for Swiss public service broadcasters SRG SSR idée suisse The listening watch The system developed by GfK companies, Telecontrol and Liechti, under the name Radiocontrol and introduced by IHA-GfK to measure radio programme consumption by means of a specially equipped wristwatch has actually been used for the first time in Switzerland. The technology cuts out hitherto unavoidable error sources to provide up-to-the-minute results faster than any previous radio research has been able to offer. Peter Brun, Head of Programming at the oldest – and today, the largest – 38 private radio station in Switzerland, interviewing a politician For one week twice a year, a total of 22,000 Swiss 2. Advertisers and their agencies can use these citizens aged 15+ have been given the opportunity radio coverage statistics to resolve the question of revelling in unique state-of-the-art status. of what would be an appropriate cost for a radio spot. They are the only ones to wear a wristwatch which, in addition to telling them the time can The watch not only represents the pinnacle of the provide a conscientious and representative record watchmaker’s art, but is also a masterpiece of of when they are listening to the radio and if so, complex electronic data processing technology, to which station. Swiss GfK company, IHA-GfK, to which GfK has contributed both ideas and is carrying out the research on behalf of public software. A sensitive microphone is automatically service broadcasters, Schweizerische Rundfunk- activated for four seconds in every minute to record und Fernsehgesellschaft SRG, and SRG company, all ambient noise which is then transformed into Publica Data, which sells radio audience data to digital data consisting of character sequences 48 private radio service providers, telling them all compressed 120 times. As Rolf Müller, Managing they need to know on listening habits in Switzer- Director of Publica Data, explains: “It makes land. The reason for this is that: subsequent reconstruction of the original sounds impossible.” This is a fact which Radiocontrol 1. Broadcasters are seeking to draw conclusions manufacturers, Telecontrol and Liechti, have from the data for the purposes of programme also had confirmed by the Swiss Department of optimization and ongoing development. Measuring Technology and the Federal Data Protection Office, and indeed, the watch does comply with all the conditions of the Data Protection Act. Media GfK SPECIAL Radiocontrol, the listening watch, records all radio and TV sounds in the wearer’s environment on a minute-by-minute basis. Tonal sequence comparison The watch has a memory of one megabyte to store seven days’ data and an integral “wearer check” verifies whether the watch is really being worn and has not just been left lying about somewhere. After a week’s operation, the participants return their watches to IHA-GfK, where the data is analyzed with the help of an audio comparative method. IHA-GfK personnel Knut Hackbarth, Head of Media Research at IHA- compare the tonal sequences registered by the GfK in Switzerland, describes the organizational 39 watch with the tonal sequences which they process: “Participants are notified by telephone have recorded from the individual radio stations that they are on duty and the watch is sent to them at the same times and immediately, this by post. We also ring everyone to check that the identifies which stations the participant in watch has arrived and that there are no problems. question was listening to during defined units In addition, we monitor that all participants send of time. their watches back on time.” Every week, the watches are worn by a different group. Each participant may only take part in » The survey method used to date relies on listener the survey twice a year for one week, with a gap recall, which is fraught with uncertainties when it of 26 weeks and over a maximum period of five comes to radio research.« years. Over a period of one year, the researchers analyze the data from watches worn by around Hackbarth adds: “All of them are obliged to wear 22,000, of whom 20 per cent are always first-time the watch on their wrist as much as possible and participants. only to take it off when absolutely necessary and even then, to leave it somewhere where it is likely to pick up a radio playing. Like in the bathroom or in the kitchen.” Error sources in conventional interviews By the end of 2000, the Radiocontrol system had replaced the method previously used by Swiss market researchers: face-to-face interviews. Hack- barth explains: “We used to conduct 18,200 inter- views per annum in Switzerland, proportionally split over the three regional languages: French, Rolf Müller German and Italian. The interview would begin with simple introductory questions on the subject As the Head of Publica Data AG, which is a subsidiary of of radio, such as how often the interviewee listened Swiss public service broadcasters SRG SSR idée suisse, he has overall responsibility for the Radiocontrol project. to the radio in one week or which stations were He regularly supplies radio ratings information on stations usually listened to and this we termed the general and programmes to 48 private Swiss broadcasters. listening public.” People listen to the During the course of the interview, those surveyed a source of background noise. This makes it radio everywhere. would give details on what they actually listened difficult for anybody to remember exact details. And Radiocontrol to on the radio between five a.m. and midnight Erroneous estimates and confusion in the light listens everywhere too. the day before. Interviewers would ask exactly of the interchangeability of some programme what the interviewee had done in time units of formats may well occur.” 40 15 minutes each: sleeping, eating, working, driving, at home, out for a walk, shopping, at leisure. And Closer to the truth: Radiocontrol data the interviewee was also asked if he or she had listened to the radio at the same time and if so, to In fact, inaccuracies may have fatal consequences, which stations. As Hackbarth says: “Exactly as because results obtained by these methods radio research is still conducted in Germany influence two key statistics, which are decisive for today”, at the same time injecting a doubt that: the existence of a station and for the advertisers’ “With this form of survey, we are counting on media planning: the interviewees’ powers of memory and this is 1. coverage and fraught with uncertainties, particularly in the case of listening audience research.” 2. listening duration. And it is here that Hackbarth and his client, Rolf » Radiocontrol has no problem with the growing number Müller, recognize exactly what the Radiocontrol of radio stations, nor with the question of what stations system can provide: by comparison with the are really listened to and for how long.« previous survey method, Radiocontrol data reveals a clear increase in the number of stations used and According to radio research experts, the danger a definite drop in the results for listening times for lies precisely here, in the fact that recall of the particular stations. Müller says: “The improvement duration, as well as the radio stations listened to, can be suspect. Problems also arise in the identification of stations which have not been specifically chosen by interviewees themselves. For instance, over lunch, children may be listening to the radio station selected by their parents, whilst in offices, people may be hearing news or music on radio stations which people other than the interviewee are responsible for choosing. In restaurants, taxis or stores, too, radio stations chosen by other people may be playing. In such cases, the interviewees generally have no Knut Hackbarth idea as to which radio station they have been listening to, or for how long. Hackbarth goes on: Head of Media Research at IHA-GfK in Switzerland, manages “Unlike TV, which usually has a fixed location in the Radiocontrol project. It is the first large-scale study in the a household, a radio is extremely portable and world to record radio ratings electronically. can be used in the most varied locations, often as Media GfK SPECIAL here is very real and this more than justifies the service station, SRG (Schweizerische Radio- und increased cost, which is almost twice as high. Fernsehgesellschaft), which is financed by licence fees, carries no advertising apart from sponsored The improvement also means that the data can be programmes on its radio stations, in terms of made available so much more quickly than before.” programmes, it is a powerful opponent for the The advantages are obvious: advertising-financed private stations. In order to survive on advertising revenue, they have to offer 1. For Radiocontrol, the growing number of stations attractive programming for the target groups (some 4.6 million Swiss in the 18 German- whom the advertisers are trying to reach. speaking cantons can currently choose between five German language SRG stations and 48 » Advertisers and their ad agencies use the ratings private radio stations, although in high density population areas, several more private stations figures to estimate the reasonable costs of radio are competing against SRG for audiences) poses advertising.« no more of a problem than the question of which stations were really listened to and for And because at 3.4 per cent or 120 million Swiss how long. francs, only a comparatively low proportion of ad-spend goes into radio advertising in Switzer- land, convincing audience figures are required to SRG SSR idée suisse and Publica Data AG, Berne secure a share of the advertising cake. By way of and Zürich, Switzerland comparison, in Germany, the share of the media market attributable to radio is three per cent, or 41 SRG SSR idée suisse is a public sector company and the leading provider of electronic media in all four language 678 million Euros per annum. regions in Switzerland. Established in 1931, SRG has been trading under the name SRG SSR idée suisse since 1999. The media offering: seven TV and eighteen radio stations. The national, multi-media and multi-lingual offering covers content ranging from news, reports, political, cultural and social background reports right through to entertainment, including film, sitcoms, radio plays, shows, talkshows and music. Publica Data AG: SRG SSR subsidiary founded in 1993. Its remit is to sell SRG SSR media and audience research – primarily information from continuous TV and radio ratings research. Its clients include private media companies, advertisers as well as media and advertising agencies. The Radiocontrol survey is a Publica Data project. 2. Reliance on the power of human recall no longer applies. The audiometer measures every minute, irrespective of what the participant happens The battle for ad-spend The oldest electronic to be doing at the time. Data is recorded to the mass communication minute, with nothing lost. Accordingly, the stations are fighting hard for medium, the radio, is 3. Erroneous estimates of listening behaviour are each franc spent on advertising, especially as always present: avoided. Switzerland is not immune to the problems of the at home, in the car, global economy and the fact that media buyers at work or in shopping 4. Times during which, for example, a vacuum are asking for very precise justification of the cost centres. cleaner is being used or other noises drown of advertising. Which accounts for the 48 private out radio music, or the times when participants stations investing in Publica Data analyses of turn the sound down because they are on the Radiocontrol data. SRG is perpetuating a tradition telephone, are deducted from the listening time sustained over many years by processing the raw recorded. data supplied itself. Given the difficult market conditions, Müller However, the results supplied by the wristwatches believes that this is a good thing. While the public are just as important for programme planners and Satellite park on the roof of CABLECOM, which runs the biggest cable network in Switzerland. programming as for media planning. Those These sort of helpful decisions are made possible responsible can read off the success or failure by the commitment of those people prepared to of their programme formats and of individual wear the Radiocontrol watches, initially for a week programmes, of whether listeners are staying with and then again for as long as the survey procedure a particular programme or switching over to other prescribes. For their part, they find fun in the networks during it, or for good, from the statistics actual taking part, because a nice watch alone, obtained and they can draw their own conclusions. which they receive as a gift for participating, is not the incentive in the long term. In fact, 86 per cent Publica Data boss Müller gives an example of of participants record their willingness to continue the effect Radiocontrol results may have on – six per cent more than is necessary. 42 programming. The very positive reception with which the Radio- » Radio broadcasters aim to use Radiocontrol data to control system has met in Switzerland and the draw conclusions about how to optimize and further successful pilot studies carried out in France, develop their programmes.« Germany and the UK, not to mention an initial three-year contract with The Wireless Group and a pilot project with Rajar, the association of British Zurich-based major local broadcaster, Radio 24, radio stations which measures radio reach, are can rely on the fact that in all its formats, it is all signs that the radio research landscape will consistently ahead of the competition for coverage change worldwide in the coming years. Also in and listening duration, except in the case of one the Asia-Pacific region, where ACNielsen Media programme, which is broadcast late on Friday International has been granted the licence by GfK evenings. “It was actually a fantastic programme to use the technology in 16 countries, the first called ‘Ministry of Sound’, which is young, trendy, large-scale trials are starting. Soon, people in all features techno, has an English DJ, is produced in the major countries of the world will be proud to London and marketed globally – a real recipe for belong to an élite distinguishable by a wristwatch success,” reports Müller. Nevertheless: Radiocontrol nobody else is entitled to wear. recorded figures which caused dissatisfaction among those responsible at Radio 24. IHA GfK AG, Hergiswil, Switzerland Radio 24 learns from Radiocontrol statistics The leading provider of market research services in Switzer- land, commissioned to carry out continuous TV and radio But instead of moaning, they looked at the results reach research for many years, active in all GfK business and acknowledged that perhaps not everybody in divisions. the large group of young people was as impressed Established in 1959, part of the GfK Group since 1998 by the constant stream of English in the programme as had originally been thought. The result was that Key clients: in addition to SRG SSR idée suisse and Publica Data, its client base includes Agro-Marketing Suisse AMS, Radio 24 producers developed a new programme Bundesamt für Statistik, Coop Schweiz, Crédit Suisse, Die with a similar format, only not quite as trendy Schweizerische Post, Feldschlösschen Getränke, Henkel, and with lots of event news broadcast directly from Lever Fabergé AG and Migros. Zurich and surroundings, and less about the Key markets: energy, financial services, FMCG, durables, London scene or elsewhere in the world. A DJ was healthcare and pharmaceuticals, logistics, media, public brought in to chat along in Zurich dialect – and service, telecommunications the programme climbed from a weak market share 280 employees, over 500 interviewers and own telephone and of 5 per cent to 11 and then up to 19 per cent. test studios. Media GfK SPECIAL Brief overview: Media Pioneering information services on media reach and impact Key services The clients • Pilot project with Rajar, the association of British radio stations Information services on media For one part, these comprise TV and which measures radio reach consumer behaviour and attitudes. radio stations and their existing Services include quantitative clients in several countries, as well • Three-year contract with The analyses of viewer, reader and as media companies in the print and Wireless Group, under the terms listener reach and qualitative Internet sectors and on the other, of which GfK will measure radio surveys on acceptance, preference the advertising industry and media reach throughout the UK using and recall of media content. agencies. Major clients include AGF Radiocontrol technology from (Television Research Partnership) in 2003. Germany, ORF (Austrian radio and Our offering • Licence agreement with media TV) in Austria and SRG SSR (Swiss research institute, ACNielsen In addition to the classic media radio and TV) in Switzerland, along Media International, regarding like print, radio, TV and outdoor with many individual publishers. the use of Radiocontrol technology advertising, GfK also surveys the 43 in 16 countries in Asia and the new media which have become The advantage for clients Pacific established thanks to the Internet, global networking and digitization. Media reach is the currency for TV and radio programmes, as well as for Positioning newspapers and magazines. Media Service details Global leader in innovative electronic companies use it as the basis for metering technology in quantitative • Continuous electronic information price structures for online and prin- TV and radio reach research gathering on TV ratings in seven ted media and advertising and other European countries agencies use it as the basis for their European market leader in quanti- media planning. In addition to this, tative TV research • Regular periodic surveying of information obtained from media the print, radio, TV, outdoor research is used to help shape pro- Number one in overall media advertising and Internet sectors in grammes and media content. research in Austria, Germany, the 20 countries throughout Europe Netherlands and Switzerland • Ad hoc surveying of attitudes, Highlights in 2002 acceptance and preferences relating to media and media • Acquisition of contract to establish content a TV panel comprising 1,500 house- holds in the Ukraine. The contract • Continuous electronic radio runs over four years and includes research using Radiocontrol equipping the TV panel with TV technology meters developed by GfK subsi- • Hard and software for use in diary Telecontrol in Switzerland. media research for measuring, • Extension of current contract data processing and analysis, with AGF (Television Research including Telecontrol TV metering Partnership) to the end of 2004 for equipment and Radiocontrol for measuring TV ratings in Germany, electronic measurement of radio as a result of which extension, reach, in addition to pc#tv TV seven per cent of the 5,640 house- consumption analysis software holds which make up the AGF/GfK TV panel will also have the digitally broadcast programmes they watch recorded, in addition to those broadcast analogously. • Radiocontrol trials in radio listening research in France and Germany 44 Providing moments of refreshment to people – everywhere at any time What the world’s biggest soft-drinks manufacturer and owner of the most valuable brand does to keep ahead of the competition in terms of product quality, logistics, distribution and local marketing in the USA. Ad Hoc Research GfK SPECIAL 45 GfK Custom Research Inc., USA: research for Coca-Cola Providing moments of refreshment to people – everywhere at any time “Coca-Cola” may be the world’s most widely understood word after “OK”, but Coke and its allied brands, such as diet Coke/Coca-Cola light, Sprite, and Fanta still have to fight for market share on a daily basis. CLASS (Customer Loyalty And Satisfaction Study), a customer satisfaction survey conducted in the USA for over ten years by GfK Custom Research Inc. of Minneapolis, has made a major contribution to this process. The project derives directly from the company’s philosophy which, despite Coca-Cola being the world’s number one brand, still works on the core principle that The Coca-Cola Company exists to benefit and refresh everyone it touches. 46 Coca-Cola is the world’s most recognizable brand, hundred years later. But the company and its and with good reason. Every day, one billion of 56,000 employees have established a host of other its products refresh thirsty people from Tokyo to successful brands around the world. One San Francisco, from Cape Columbia to Cape Horn, is Fanta, invented in Germany in 1940, which and from Longyearbyen to Simonstown – in close now comes in eight flavours and is sold in 170 to 200 countries around the globe. countries. Others include Sprite, Cherry Coke, Vanilla Coke, Mezzo Mix (a refreshing mix of cola The Coca-Cola Company’s wide-ranging brand and fruit flavours), Lift Apple, Bonaqa still and portfolio has an 18 % share of the global soft carbonated table water, Dasani purified water, drinks market. Its largest Division is North the energy drink Burn, the fitness drink Powerade, America, which generates 32 % of revenue, the Cappy juice and nectar range, Kinley bitter followed by Europe, Eurasia and the Middle East drinks for adults, Nestea iced tea and the fitness (27%), Asia (26 %), Latin America (11 %) drink Aquarias. In short, Coca-Cola has something and Africa (4%). The Coca-Cola brand was to quench the thirst of every consumer around created in the United States in 1886, while diet the world. Coke/Coca-Cola light was launched almost a The Coca-Cola Company distributes 300 soft drinks in over 200 countries, with communication, marketing and promotional activities securing a global presence. Ad Hoc Research GfK SPECIAL Putting the brand philosophy into practice 3. Grow system profitability and capability together with their bottling partners. But turning products into real brands requires a carefully thought-out philosophy. There are two 4. Serve customers with creativity and consistency things that The Coca-Cola Company regards as to generate growth across all channels. fundamental to its success: 5. Direct investments to highest potential areas 1. Connecting with consumers by creating brands across markets. they love. 6. Drive efficiency and cost-effectiveness 2. Finding new and appealing ways to deliver everywhere. these brands to thirsty people everywhere. Objectives 3 and 4, in particular, show that 47 Coca-Cola and its bottling partners rely on carefully planned market research projects to help them make strategically sound decisions and provide marketing support. The company uses GfK Custom Research Inc. in Minneapolis to carry out a number of these research projects, and its very dynamic distribution system makes the annual CLASS survey particularly important. Each local market needs its own strategy Many leading international players proclaim their Bob Foley allegiance to the principle of “Think global, act local”. Coca-Cola used to be no exception, but Manager of the Local Marketing Partner Program at since then its view has changed. Realizing the The Coca-Cola Company in Atlanta, responsible for the importance of local relevance to any market and CLASS project (Customer Loyalty and Satisfaction Study). This customer satisfaction survey conducted regularly in community, Coca-Cola believes that thinking smart the USA for ten years by GfK Custom Research Inc. of Minneapolis, provides local marketing support to the bottlers » Much of our success depends on the quality of Coca-Cola products. and success of our bottling partners, all of whom control their local market.« But it also takes more than a consistent philosophy and acting smart provides the flexibility to approach to create successful, profitable brands. Staff in each opportunity in the appropriate manner. Atlanta, and at the company’s subsidiaries across Sometimes thinking globally is called for and other the globe, have a precisely formulated set of times thinking locally is the right approach. objectives which they pursue on a daily basis: It all leads back to the philosophy that The Coca-Cola 1. Accelerate carbonated soft drink growth, led Company exists to benefit and refresh everyone it by Coca-Cola. touches. 2. Selectively broaden their family of beverage Bob Foley, Manager of the Local Marketing Partner brands to drive profitable growth. Program and the person at Coca-Cola responsible for the CLASS project, explains the change in his company’s attitude. “Much of our success The Coca-Cola Company and across the United States use CLASS to assess produces syrups and customer satisfaction in an effort to assist bottling concentrates. Originally, partners to monitor their customers’ needs in the these were mixed up local market. on site in bars and restaurants. “We provide bottlers with detailed information within their particular markets, keying on the level of satisfaction their customers have with the services the bottler provides,” Foley says. For example, in the foodservice industry, which sells Coca-Cola fountain drinks as well as brands in cold bottles and cans, CLASS tells a bottler how well they are meeting the service needs of these customers. “That way, bottlers can approach the market in a targeted manner and practice good customer relationship management.” Customer satisfaction surveys guide Recent product local business innovations from the biggest soft drink manu- Erik Andersen, Senior Vice President at GfK 48 Custom Research Inc., describes in detail how facturer worldwide include Frozen Cappuccino and this works. “Take the biggest bottler in the USA, Frozen Vanilla Coke. Coca-Cola Enterprises (CCE). They operate bottling plants everywhere in the USA, and we depends on the quality and success of our bottling carry out our CLASS survey and analysis not just partners, all of whom control their local market. in the individual areas, but often broken down Our bottlers and their customers offer our brands into two, three or four local sub-units of a CCE to a hugely diverse consumer base, from the bottler. With some bottling plants we even analyze world’s biggest cities to its remotest villages. Our customer opinions down to the level of individual bottling partners consistently play a significant sales centers, so that we can understand the and active part in the life of the local community.” level of satisfaction customers have with CCE’s service. The best way to maximize business is » Coca-Cola’s managers in Atlanta and across the to understand satisfaction at the closest point of United States use CLASS to assess customer satis- contact with the customer.” faction in an effort to assist bottling partners to monitor their customers’ needs in the local market.« “The idea is to be in the market together with Coca-Cola bottlers and our other distributors who implement marketing and customer support programs to meet local customer needs. CLASS is one of the projects that The Coca-Cola Company uses to measure quality among the bottlers and other distribution partners in the huge domestic market of the United States.” The company ships its products in the form of syrups and concentrates to bottling partners, who Erik Andersen then manufacture them into the various drinks Senior Vice President at GfK Custom Research Inc., and brands and package and supply them to retailers, his team have been in charge of the CLASS project since restaurants, and other types of customers for sale its launch ten years ago. They know the business and to consumers. Coca-Cola’s managers in Atlanta the local marketing conditions of the bottlers working for The Coca-Cola Company better than anyone. Ad Hoc Research GfK SPECIAL Brief overview: Ad Hoc Research Increasing market potential in the long term Key services Special markets • Successful launch of an instrument which determines Information services for developing, In addition, Ad Hoc Research also the financial value of brands and positioning and maintaining products offers services for specialized and of GfK PackChallenger and services, aimed at optimizing the highly complex modern markets in mix of marketing policy activities and the business-to-business, financial • Implementation of international managing product and corporate services, energy, automotive, tele- guidelines to harmonize research brands and customer loyalty. communications, capital goods, processes logistics, FMCG and textiles sectors. Our offering • Award of the prize for best The advantage for clients methodology presentation at the A modular system of instruments 2002 ESOMAR Conference in and tailor-made solutions for every Clients use these services as a Barcelona for “Assessing the phase in the product and service basis for minimizing the risk relating financial brand value”. lifecycle. The system relates mainly to short, medium and long term to services where data is gathered marketing decisions and to increase Positioning through surveys and tests. Clients their success potential in the long 49 In terms of business volume, can opt to take up the entire service term. Surveys carried out extend GfK Ad Hoc Research is ranked No. 7 spectrum, or just individual modules. from initial business or product in the world and No. 5 in Europe. ideas and pre-launch preparation Key service sectors to subsequent marketing and GfK Ad Hoc Research is one of Market segmentation and evaluation communication activities. the world’s leading suppliers of – market positioning – concept information services in the image The clients and product research – packaging and communication research optimization – price optimization – Clients are companies from industry, segments and of customer loyalty advertising media optimization – retail and the service sector, as programmes. test market research and forecasting well as advertising agencies and – brand and campaign management other service providers in the – customer loyalty research. communications sector. Major clients include Procter&Gamble, Kraft Many of the instruments used Foods, Coca-Cola, DaimlerChrysler, have been undergoing continuous Bank of America, L’Oréal, Wrigley, development for decades. This has BMW and Deutsche Telekom. given GfK databases, containing tests which have already been Highlights in 2002 carried out, to serve as benchmarks • Acquisition of majority share- for new surveys. Today, GfK offers holdings in Belgian Significant, services in 29 countries throughout German MACON (market leader in Europe and the USA, and works with geographic and location software) cooperation partners in a further and Portuguese Intercampus, as 61 countries worldwide. well as a minority shareholding in Indicator, the No. 3 in ad hoc research in Brazil. • Merger of the three Italian GfK Ad Hoc Research companies to form GfK CBI And Foley resumes: “Each year, based on the their customers with new ideas for promoting results of the CLASS survey, marketing programs Coca-Cola products in their outlet. The goal of the are developed that can be implemented by bottlers Coca-Cola system is to deliver products into the at the local level. This allows bottlers to provide Jason Grubbs is one of the fleet drivers in the USA, who make market in a timely, efficient fashion and to provide “CLASS is all about understanding how well sure that the source of soft customers with top-quality marketing support.” bottlers are meeting customers’ expectations,” drinks never runs dry. Andersen goes on to say. “It’s also about discovering where the growth opportunities lie for Market researchers’ advice is in high demand Wherever you look: the bottler. And thirdly, it’s about finding out how 50 Coca-Cola, the number one Each year, GfK Custom Research Inc. carries out to develop long-term relationships with customers, brand today, was developed thousands of telephone interviews with a wide which is why the project places so much emphasis and first sold by pharmacist variety of customers of U.S. bottlers. “The team on customer loyalty. A large part of our analytical John Pemberton in Atlanta. at GfK Custom Research really understands our work relates to what Coca-Cola and its bottlers are business,” continues Foley. “They are real experts doing to ensure that customers remain committed in customer satisfaction and loyalty, and in to the brand.” addition to all their outstanding work, they have built a database of CLASS results and associated industry information on customer satisfaction The Coca-Cola Company, Atlanta, USA trends and innovations for use by all bottlers and Biggest global soft-drinks manufacturer, provider of four Coca-Cola Company employees. of the five top soft-drink brands in the world: Coca-Cola, diet Coke, Fanta and Sprite » CLASS is all about understanding how well bottlers Established in 1896 in Atlanta by pharmacist John Pemberton are meeting customers’ expectations. It’s also about Mission statement discovering where the growth opportunities lie for “The Coca-Cola Company exists to benefit and refresh the bottler. And thirdly, it’s about finding out how to everyone it touches. For more than a century we have been develop long-term customer loyalty.« fulfilling this promise.” Product range GfK Custom Research speaks the industry’s In addition to Coca-Cola, the world’s most recognizable brand, language. They also provide valuable and which is valued at almost US$ 70 billion, the company independent assistance when we present the produces syrups and concentrates for over 300 soft-drink results of CLASS to bottlers and are very pro- brands sold in close to 200 countries around the globe. active in making recommendations for process Of the 321 million inhabitants of North America, on improvement.” average consumers will drink one beverage produced by The Coca-Cola Company a day. The 522 million inhabitants As is common in early stages of any customer of Latin America drink a Coca-Cola beverage four times a satisfaction program, the bottling partners were week and in the rest of the world, 1.8 billion people drink half concerned about the CLASS results. They felt it a beverage a week. would only reveal their shortcomings and nobody likes to hear bad news. Since then, they have come to understand that satisfied and loyal customers, at whatever level, are the lifeblood of a business and are ambassadors of Coca-Cola with other customers and consumers. Ad Hoc Research GfK SPECIAL the bottlers who have achieved the highest GfK Custom Research Inc., Minneapolis, USA customer satisfaction scores. And, at GfK Custom Research Inc.’s suggestion, there is also another Provider of information services in ad hoc research, No. 25 of all US market research companies and the award for the bottler achieving the highest first service provider to be presented with the American improvement in satisfaction over the previous Malcolm Baldrige Award for Excellent Quality Manage- year. The prizes are greatly coveted, Foley reports ment in 1996. proudly. “Everyone in the bottling system wants Established in 1974 by employees in the market research to know who came out on top. The competition division of Pillsbury for the awards keeps everyone striving to be the best.” Key clients: in addition to The Coca-Cola Company, Bank of America, General Mills, LaQuinta, MasterCard, Procter&Gamble, Perfetti Van Melle, Pfizer, Tyson Foods, » Some time ago, the CLASS customer satisfaction Wendy’s survey resulted in the creation of a complex Key markets: automotive, financial services, FMCG, partnership-based program to support the local consumer goods, wholesale, hard and software, marketing and service activities of Coca-Cola pharmaceuticals, travel and leisure, telecoms bottling partners in the USA.« 125 employees at three branches in Minneapolis, New York and San Francisco. Some time ago, the customer satisfaction survey resulted in the creation of a complex partnership- based program to support the local marketing Foley mentions one instance of how CLASS has 51 and service activities of Coca-Cola bottling part- led bottlers to rethink the way they do things. ners in the USA. Bob Foley summarizes: “CLASS “If they learn that customers are saying there’s is no longer just our survey. It also belongs to our a distribution problem and products are being bottlers, and they want to know what their customers delivered late or not at all, they can decide on think of their products, services and sales support. an approach to correct the problem. “Possible It gives us at The Coca-Cola Company a direct way reasons for an issue with distribution might be a of keeping a finger on the pulse of our customers shortage of drivers or overloaded routes. A bottler through the hard work of our bottling partners.” has to compete with other industries for drivers Local school children and may decide to implement an incentive visiting the World of program to attract and retain quality drivers. They Coca-Cola in Atlanta may also look at restructuring routes to allow all deliveries to be made within the assigned day without missing a stop or working overtime. CLASS tells them that a way to achieve higher customer satisfaction is to ensure that orders arrive on time.” Andersen says the survey results are monitored over time. “The following year, we measure customer satisfaction again and tell the bottler how many points it has increased. And if there’s a significant rise, we make a point of congratulating them.” Foley and Andersen agree that CLASS results often lead to strategic changes in a bottler’s way of servicing the marketplace. “We often find that customer satisfaction has actually shown a marked improvement.” Everyone wants to be the best Big improvements can also pay dividends of their own, because Coca-Cola gives annual awards to G f K S H A R E S – I N V E S T O R R E L AT I O N S A D I F F I C U LT Y E A R F O R S H A R E H O L D E R S The worldwide stock market decline that affected nearly all equities during 2002 also impacted on the GfK share price which, by the year-end, had fallen to EUR 12.81 (–37 per cent). However, the management remains convinced that the current share price does not present an objective reflection of the fundamentals of GfK. On the contrary, the management believes that the GfK share is undervalued, both in relation to the reference indices and to its competitors. 2002 – worldwide stock market decline In 2002, stock markets came under pressure worldwide, with the Dow Jones in the 52 USA down by almost 17 per cent and the Nikkei-225 in Japan by 18 per cent. The European bourses sustained even heavier losses, with the Dow Jones Stoxx 50, the European index, falling by over 35 per cent in comparison with the previous year. In Germany, the Dax and the MDax lost more in percentage terms than at any time since their introduction in 1987. For the third year in a row, the Dax recorded a loss, ending 2002 down 44 per cent on 2,893 points, following its earlier losses of 19.8 per cent in 2001 and 7.5 per cent in 2000. The MDax, on which GfK was listed, fared better, losing 30 per cent in 2002 compared with a fall of 7.5 per cent in 2001 and rising by almost 14 per cent in 2000. The DJ Stoxx Media, which is the sector reference index for the GfK share price, saw a sharper fall than that of the major German indices of 47 per cent in 2002. Share price performance from January 2002 to March 2003 in EUR* 25 20 15 10 5 January 2002 April 2002 July 2002 October 2002 January 2003 * Indexed to the GfK share price GfK (XET) Dax 30 MDax DJ Stoxx Media There were various reasons for the poor performance of equities in 2002, above all a series of accounting scandals which dented investor confidence in accounting practices and the figures published by companies. In addition to concerns about the economic situation, there was increasing fear later in the year about the possible consequences of a war in Iraq. By the autumn, this combination of circumstances had brought the stock markets to rock bottom. GfK shares – Investor Relations THE GfK GROUP At the same time, the fall in the markets opened up new opportunities, with many of the expected economic and political risks already having been factored into share prices. For example, at the current level of the Dax, the price/earnings ratio on the GfK share price performance comparison in % 2002 From IPO to 31 March 2003 GfK AG – 37.2 – 41.1* Dax – 43.9 – 53.9 MDax – 30.1 – 32.0 DJ Stoxx Media – 47.0 – 57.9 * Compared with the Initial Public Offering (IPO) price of EUR 18.50 53 basis of profit forecasts for 2004 stands at 11. By comparison, when the equity markets peaked in March 2000, the P/E ratio based on profit forecasts for 2001 stood at nearly 30, almost three times as high. GfK share price influenced by the market Over the course of the year, the GfK share price fell by 37 per cent from EUR 20.39 at the end of 2001 to EUR 12.81 at the end of 2002. Between the high of EUR 24.30 and the low of EUR 11.50, there was a fluctuation spread of EUR 12.80. Compared with the share price of EUR 18.50 at the time of the IPO, the price at the end of 2002 represents a fall of 31 per cent, or an average annual reduction of 10.7 per cent. Initial shareholders who reinvested their gross dividends, inclusive of corporation tax credit, have seen their investment in GfK shares shrink by an average of 10.1 per cent p. a. Over the same period, an investment in bonds would have returned an average yield of 4.9 per cent p. a. The GfK management is not satisfied with this result. On the contrary, it is convinced that the current share price does not provide an objective reflection of the fundamentals of GfK and that the share is undervalued in relation to the reference indices and to the shares of competitors. GfK shares in the analysts’ spotlight Despite all of the restructuring and downsizing of the research and analysts’ depart- ments of the banks, GfK continues to be rated by thirteen well known institutions. Although some of the smaller research firms ceased tracking GfK shares, some larger institutions have provided ratings of GfK shares for the first time. Indeed, more than half of the banks and brokers which now rate GfK are global players and some of them monitor the shares from abroad. Corporate Governance The German Corporate Governance Code published in 2002 has laid down inter- nationally recognized standards of good, responsible corporate management to complement the legal requirements. GfK welcomes this step and, in accordance with § 161 of the German Stock Corporation Act (AktG), has disclosed the extent to which it complies with the recommendations of the Code. Existing practices largely correspond to the recommendations and suggestions of the German Corporate Governance Code. For example, the Group has already had rules of procedure for the Management Board and the Supervisory Board for a number of years. Since the IPO in 1999, GfK has presented quarterly reports and provided a webcast of its General Meeting and accounts press conference. In the past year, GfK switched its accounting system to the international standards of US GAAP. In order to enable private investors to exercise their voting rights more easily, GfK made a voting representative available to its shareholders last year and this service will be further 54 expanded. In its implementation of the German Corporate Governance Code, GfK will be further extending the range of information available on the Internet. The Management Board and Supervisory Board of GfK AG have resolved to disclose not only deviations from the recommendations contained in the Code but also deviations from its suggestions, even though the latter is not a legal requirement. The declaration of conformity provided for in § 161 of the German Stock Corporation Act was made by the Management Board on 9 December 2002 and by the Supervisory Board on 19 December 2002. The deviations relate to the following: At the Annual General Meeting held on 13 June 2002, the owners of the company resolved by a 98 per cent vote authorized capital including a provision to exclude shareholders’ subscription rights. Strict limits are laid down for this exclusion. The authorization is intended to give the Management Board the necessary flexibility to implement decisions quickly for the benefit of the company and the owners. GfK will give the remuneration, shares and stock options of the members of the Supervisory Board and the members of the Management Board as totals, covering the Management Board and the Supervisory Board separately. The statement, which is contained in the Notes to these accounts, is divided into fixed and variable salaries and the portfolios of stock options and GfK shares. The Management Board and Supervisory Board consider that it is important to reduce the time needed for the publication of the Group annual report and the interim reports. Accordingly, the Management Board has introduced measures to speed up publication. GfK does not see transparency as a burdensome duty but as part and parcel of communication with GfK shareholders and the public. Hence, as far as the company is concerned, the deviations notified represent not an end in themselves but a step towards further improvements. GfK shares – Investor Relations THE GfK GROUP Country of origin of institutional investors in % UK 6.8 Germany 5.4 USA 5.2 France 2.2 Other 1.8 Total 21.4 55 Free float at international level There was no significant change in the GfK shareholder structure during the past year. GfK-Nürnberg e.V. is the largest shareholder with a holding of 64 per cent. Of the 36 per cent free float, 33.7 per cent is held by private and institutional investors. Of Current shareholder structure this 33.7 per cent, the bulk (21.4 per cent) is in the hands of institutional investors (2001: 20 per cent), while 12.3 per cent is held by private investors (2001: 13.7 per 12.3 % 2.3 % cent). The Management Board and Supervisory Board hold 2.3 per cent. The largest group of institutional investors is from the UK with 6.8 per cent (2001: 7.8 per cent). 64.0 % This is followed by Germany with 5.4 per cent (2001: 4.3 per cent), the USA with 5.2 per cent (2001: 3.8 per cent) and France with 2.2 per cent (2001: 3.2 per cent). 21.4 % Dax 100 and MDax ranking in % At the 2002 year-end, GfK ranked 89th in the Dax 100 in terms of volume traded GfK Nürnberg e.V. 64.0 and 87th in terms of market capitalization. In 2002, the average daily trading volume Institutional investors 21.4 was 13,904 (2001: 14,957). During the year under review, there was a further shift Private investors 12.3 in trading away from the Dax 100 to the Xetra, bringing the volume traded on the Management Board and Xetra electronic platform to almost 85 per cent (2001: 79 per cent). Supervisory Board 2.3 Following the change in the segmentation of equities on the Deutsche Börse in 2003, GfK shares are now listed on the SDax instead of the MDax. With effect from 24 March 2003, the MDax was reduced from 70 to 50 stocks. In consequence, this index now only includes the 60 largest companies in terms both of market capitalization and volu- me traded. According to the rankings published by the Deutsche Börse on 31 January 2003, GfK occupied 58th place on the basis of market capitalization and 68th place on the basis of volumes traded. On the SDax, which like the MDax includes 50 stocks, GfK is ranked 7th. As many investors in GfK shares are industry rather than index-oriented, GfK believes that the change will not have any significant adverse impact in the long term. For institutional investors, the main interest in GfK is as one of the leading companies in the field of market research. GfK shares: key data Unit 20012) 2002 High EUR 35.25 24.30 Low EUR 14.10 11.50 Close EUR 20.39 12.81 Average daily volume traded1) No. 14,957 13,904 Number of no-par shares No. 26,121,998 26,121,998 Market capitalization as at 31.12. EUR million 532.6 334.6 Rank in Dax 100 by sales 88 89 by market capitalization 79 87 Dividend EUR 0.17 0.20 56 Total dividend EUR million 4.4 5.2 Earnings per share EUR 0.24 0.98 Free cash flow3) per share EUR 1.72 1.55 1) GfK shares are officially traded on the Frankfurt stock exchange (Reuters: GFK.DE, Bloomberg: GFK GR, ISIN: DE 0005875306, German securities code: 587530) 2) Pro forma statements 3) Before acquisitions, other investment and asset disposals Dividend increase planned Following a resolution of the GfK Supervisory Board, a dividend of 20 cents per share will be proposed to the Annual General Meeting on 13 June 2003, an increase of 17.6 per cent over the dividend of 17 cents per share paid in 2002. The total dividend will rise to EUR 5.2 million (2001: EUR 4.4 million). Since its IPO in September 1999, GfK has continually increased its dividend by a total of 54 per cent. Stock option programme continued At the year-end, GfK managers again had the opportunity to exchange part of their performance-related remuneration for stock options. Of the total of 594,117 options offered, 476,662 were taken up, which represents an acceptance rate of 80.2 per cent. The basis for subscription is the stock option programme newly resolved at the AGM held on 13 June 2002. After this year’s AGM on 13 June 2003, two tranches can be exercised: the first tranche consisting of 389,165 options at a price of EUR 55.20 and the second tranche of 375,725 options at a price of EUR 41.71. Due to the high exercise price, neither tranche is yet in the money. Investor Relations activities stepped up The aim of the Investor Relations department is to provide prompt and comprehensive information about the GfK Group and its business. GfK wishes to ensure thereby an efficient opinion-forming process, so that investors, analysts and the financial media are able to arrive at an appropriate assessment of the financial position of GfK and its GfK shares – Investor Relations THE GfK GROUP future prospects. Through open financial communication, the Investor Relations department seeks to develop and strengthen confidence in GfK and in the success of Provisional key dates in the financial calendar its business model in the financial community. To position its shares in countries in which the GfK Group is a market leader, the 30 April 2003 management has taken part in many different events with international analysts Accounts press conference, Nuremberg and investors. In addition, GfK has regularly published interim reports and provided 30 April 2003 information about important events by e-mail, fax, post and conference calls. Analysts’ conference, Frankfurt/Main In particular, Investor Relations activities have included: 27 May 2003 • roadshows to address investors directly in Germany, the USA, the UK and France Quarterly report as at 31 March* 57 • over 90 individual meetings with investors and analysts to discuss questions of 13 June 2003 strategy, the financial situation and market forecasts Annual General Meeting, Nuremberg • 16 conference calls with share analysts and institutional investors 27 August 2003 Interim report as at 30 June* • 8 international conferences 26 November 2003 • participation in INVEST 2002 in Stuttgart, where private and institutional investors Quarterly report were able to inform themselves on the financial statements for 2001 and the as at 30 September* prospects for the year in progress. 26 February 2004 The AGM held in Nuremberg on 13 June 2002 was attended by nearly 400 share- Provisional result for holders and shareholder representatives holding 71.3 per cent of the share capital of financial year 2003* GfK. As well as the increase in the dividend, they approved the GfK strategy of further expanding the Group’s international network. 22 April 2004 Accounts press conference, Nuremberg The Internet is becoming increasingly important as a means of financial communi- cation. During the past year, more and more private and institutional investors made 22 April 2004 use of the GfK website to call up information about the company and its shares. They Analysts’ conference, also took advantage of the opportunity to use the Internet to follow the AGM and the Frankfurt/Main accounts press conference. 27 May 2004 In future, GfK will be publishing a newsletter four times a year in order to give Quarterly report as at 31 March* investors an insight into the corporate life of the Group. The objective is to make 15 June 2004 information about GfK and the market research industry available to a wider range Annual General Meeting, Nuremberg of investors than in the past. The newsletter will be issued in electronic form and subscriptions may be taken out by e-mail (email@example.com) or by visiting 26 August 2004 the GfK website (www.gfk.de). Interim report as at 30 June* 25 November 2004 Quarterly report as at 30 September* * Publication is scheduled for before the start of the trading session THE MANAGEMENT BOARD Petra Heinlein Dr. Gérard Hermet Dr. Klaus L. Wübbenhorst Responsible for the Media Responsible for the Non-Food Tracking Chief Executive Officer (CEO) business division business division Responsible for Strategy, Investor Relations, 58 Public Affairs and Communications, Method and Product Development, IT and Management Development née Dengler, born in Bad Staffelstein, born in Montpellier, France, born in Linnich, 7 October 1958 19 January 1951 23 February 1956 • Professional career • Professional career • Professional career Since 2002 Member of the Management Board Since 1999 Member of the Management Board Since 1992 Member of the Management Board, of GfK AG, appointed until 2007 of GfK AG, appointed until 2008 since 1998 spokesperson, and since 1999 Chief Executive Officer of GfK AG, appointed until 2007 2001 Integration management on behalf of 1998 – 2000 Chairman of the French Marketing GfK AG for the Martin Hamblin GfK Group and Association (AFM) Since 1997 Member of the Management Board, GfK Great Britain, UK since 2002 Chairman of the Management Board 1988 – 1998 General Manager of GfK Sofema, of ADM, the working group of German market 2000 Integration management on behalf of France and social research institutes GfK AG for GfK Custom Research Inc. in the USA 1984 – 1998 Managing Director of GfK France, 1992 – 1997 Member of the Management Board 1992-2000 Managing Director of content census then General Manager 0f GfK Marketing Services, of GfK AG, responsible for Accounting, Finances, in Frankfurt France Financial Controlling, Personnel, Purchasing, 1985 Joined GfK as project manager with 1978 – 1984 Employee of Burke Marketing General Administration, Minority Interests, GfK Marktforschung Research, Paris, France Production, IT, Data Processing 1984 Research Assistant at the Arnold- 1991 – 1992 Member of the Management Board Bergstraesser-Institut, Freiburg • Training of KBA-Planeta AG, Radebeul near Dresden 1978 PhD from the University of Grenoble 1984 – 1991 Employee of Bertelsmann AG, • Training Gütersloh, latterly as Managing Director of 1975 Graduated from the French Business School Druck- & Verlagsanstalt Wiener Verlag. Ges.mbH 1984 Graduated in political science from the (ICN) Nfg. KG, Himberg near Vienna University of Bamberg • Training 1984 PhD from the Technische Hochschule, Darmstadt 1981 Graduated in economics from the Universität-Gesamthochschule, Essen The Management Board THE GfK GROUP Dr. Franz Merl Wilhelm R. Wessels Heinrich A. Litzenroth Chief Financial Officer (CEO) Responsible for the Consumer Tracking Responsible for the Ad Hoc Research Responsible for Financial Services, business division and the HealthCare business division Personnel Services and Central Services segment 59 born in Regenstauf, born in Haren, born in Mölln, 7 April 1949 12 October 1952 13 December 1951 • Professional career • Professional career • Professional career Since 2002 Member of the Management Board Since 1996 Member of the Management Board Since 2000 Member of the Management Board of GfK AG, appointed until 2007 of GfK AG, appointed until 2006 of GfK AG, appointed until 2004 1990 – 2002 Member of the Management Board 1991 – 1996 Managing Director of GfK AG 1993 – 1999 Managing Director of GfK of Bayerische Treuhandgesellschaft Gesundheitsforschung/I+G Gruppe Gesundheits- Marktforschung GmbH Aktiengesellschaft, Wirtschaftsprüfungs- und Pharmamarktforschung 1989 – 1999 Managing Director of GfK gesellschaft Steuerberatungsgesellschaft, Munich 1986 – 1996 Managing Director of GPI Testmarktforschung GmbH 1988 – 2002 Partner at KPMG Deutsche Gesellschaft für Pharma-Informationssysteme, 1978 – 1989 Employee of GfK, responsible for Treuhandgesellschaft, Berlin and Frankfurt Nuremberg/Frankfurt the development of GfK BehaviorScan in 1996 – 2000 Member of the working group Germany and building up GfK Rechnungslegung von Stiftungen (accounting for • Training Testmarktforschung foundations) at IDW 1977 Graduated in economics from the 1986 – 2002 Managing Director of RTG Revisions University of Saarbrücken • Training und Treuhandgesellschaft mbH, Munich 1977 Graduated in economics from the Freie 1973 – 1986 RTG Revisions und Treuhand- Universität Berlin gesellschaft, Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Munich • Training 1983 Qualified as auditor 1979 PhD from the University of Munich 1978 Qualified as tax consultant 1973 Graduated in economics from the University of Munich 60 MANAGEMENT REPORT MANAGEMENT REPORT FOR THE GfK GROUP 62 1. The economy as a whole and the market research sector 64 2. The GfK Group Economic and financial development 68 3. Business divisions 68 Consumer Tracking Growth trend continues 69 Non-Food Tracking Leading position further extended 61 70 Media Affected by the crisis in the print media 70 Ad Hoc Research Growth achieved despite economic decline 71 Other Providing internal services and healthcare information services 72 4. Regions 72 Germany Growth through acquisitions 73 Europe Pleasing increase in operating income 74 America Good progress 75 Asia and the Pacific Exchange losses countered by strong growth 75 The GfK network Further expansion 76 5. Risk report 78 6. Research and development 80 7. Employees 82 8. Organization and administration 82 9. Purchasing 83 10. Environmental protection 83 11. Social commitment 84 12. Major events since the 2002 financial statements 84 13. Outlook MANAGEMENT REPORT FOR THE GfK GROUP 1. The economy as a whole and the market Baltic countries, for example, expansion accelerated. The causes research sector for this positive development were rising investment activity and increased consumer spending. Overall economic development – modest and patchy In the euro zone, the economic recovery during 2002 failed The global economic situation continues to be characterized by a long way to match the expectations of economic experts by a high level of uncertainty. Particularly in the first half of and politicians. Indeed, quite the contrary. At 0.8 per cent, real 2002, there seemed to be the first signs of a slight upturn. economic growth lagged well behind the previous year’s figure However, during the second half of the year, the talk of a war in of 1.4 per cent. Iraq and declining consumer confidence in the industrialized countries made it become clear that the hoped for economic Within the euro zone, Germany was once again the tail-ender stabilization would still be some time in coming. with, according to the DIW estimate, a real increase in GDP of just 0.2 per cent (2001: 0.6 per cent). The mood of economic Nevertheless, despite the weakness of the economy during the optimism which characterized the first half of the year largely last months of the year, real economic growth in 2002 was evaporated during the second half. Over the course of the year, estimated by the FAZ Institute to amount to 2.8 per cent (2001: growth forecasts were successively revised downwards. There 2.2 per cent). However, the development of the major regions were various reasons for this. 62 and national economies varied widely. Following the intensive debate over the adverse economic In the USA, where there had been fears of a long phase of impact of the introduction of the euro, the survey conducted sluggish growth or even recession, strong economic growth by GfK for the European Commission in May 2002 showed was recorded during the first half of the year. According to that consumer confidence in Germany was at its lowest figure the FAZ Institute, this was due to interest rate policy, active for 18 years. Then, during the second half of the year, German financial policy and falling crude oil prices. This promising hopes of an economic upturn vanished altogether. Crucial factors start engendered expectations of a sharp upturn, which then here were unemployment and the smouldering conflicts in the failed to materialize. Spectacular bankruptcies, major accounting Middle East. Moreover, the crisis in the financial markets resulted scandals and an increase in oil prices spurred by the wrangling in additional uncertainty. Given the existing weakness of the over Iraq all combined to reduce the prospect of a sustained German economy, the fall in the stock markets became even economic recovery during the second half of the year. According more significant. Share-owning households felt that they were to the estimates of the DIW (Deutsches Institut für Wirtschafts- getting poorer. With the unemployment figures continuing to forschung, Berlin), real growth in GDP during 2002 amounted to rise, consumer spending was also reined back. In November, 2.4 per cent (2001: 2.8 per cent). the propensity of consumers to go out and buy reached a new In Japan, economic experts consider that, despite another slight low. fall in GDP of an estimated 0.2 per cent according to the DIW Together with Japan, for the second time, Germany came in last (2001: -0.3 per cent), the development in 2002 suggests that the among the G7 countries. country is now largely out of recession. The slight upturn that began to emerge was generated largely by private consumer buying of durables. However, the positive trend continues to be The market research sector – potential for growth fragile. The hesitant development of the overall economy did not leave According to the DIW, economic growth was particularly the market research sector entirely untouched. According to an dynamic in the countries of South-East Asia, with real growth estimate by Morgan Stanley, companies in the retail, services standing at 4.5 per cent (2001: 2.6 per cent). The main causes and media sector paid out 3 per cent more for market research here were rising exports and an expansion in domestic demand. in 2002 than in the previous year (2001: in EUR, 5.8 per cent; in USD, 2.8 per cent. Source: ESOMAR). In absolute terms, this In Central and Eastern Europe, the national economies amounted to EUR 18.3 billion. However, unlike previous years, appeared to be largely unaffected by the weak global economy the growth in the market research sector was only slightly higher and, according to the DIW estimate, there was above-average than that of the economy as a whole. growth of 3.3 per cent (2001: 3.0 per cent). In the region as a whole, the economy remained robust during 2002 and in the The economy as a whole and the market research sector MANAGEMENT REPORT The regional centres in which the industry, retail and services Market research industry in comparison with GNP and advertising industry worldwide sector make the most intensive use of market research continue Index value 1991 = 1001) to be America and Europe. The USA, ahead of the UK, Germany 1993 111 and Japan, is the largest national consumer of market research 107 services. 105 1994 124 117 Market research market by region and by country 109 1995 137 In % 131 America 46 113 1% 46 % of which USA 39 1996 146 40 % Asia 13 138 116 of which Japan 7 1997 159 Europe 40 140 of which UK 10 121 of which Germany 9 1998 181 13 % 144 Rest of the world 1 63 125 Total market volume 2002: EUR 18.3 billion 1999 198 Source: ESOMAR, Morgan Stanley 149 129 2000 206 Traditionally, manufacturers of branded fast moving and slow 155 moving consumer goods have represented the largest group of 134 clients for market research services in terms of overall 2001 212 150 sales, followed by media, pharmaceutical and retail companies. 136 In recent years, however, the client structure has been moving 20022) 218 away from the traditional branded goods industry to such sectors 149 as telecommunications, financial services, public and private 140 1) Basis: value in USD health services and energy supplies. The causes for this shift 2) Estimated industry growth in 2002: 3 per cent BSP Advertising include the privatization and deregulation of these sectors, as Market volume: EUR 18.3 billion Source: ESOMAR, Morgan Stanley, Zenith Media Market Research a result of which companies have had to become customer- oriented and conduct market research into their potential target groups. Nevertheless, the growth rate for the market research sector during the past year was clearly better than that of the advertising industry, which according to an estimate by Market research volume by customer segment Zenith Media, was 0.7 per cent lower than the previous year. In % This result confirms a trend that has already prevailed for 11% 5% Consumer goods industry 37 ten years, namely that market research is more dynamic and 37 % Media 22 less cyclical than advertising. One of the main causes for this is 10 % Healthcare and pharma 15 the fact that whether the economy is strong or weak, market Retail 10 research information services overall are considered to be Telecommunications, post, indispensable support for the marketing sector activities of com- energy supply 5 panies from industry, retail, media and the services. 15 % 22 % Other segments 11 Total market volume 2002: EUR 18.3 billion Source: ESOMAR, Deutsche Bank The market research sector continues to offer great potential for 2. The GfK Group: growth thanks to a number of factors: Economic and financial development Fierce competition between companies expanding This year, for the first time, GfK is presenting its Group worldwide continues. Political, economic and technological accounts on the basis of US GAAP (United States Generally developments have greatly accelerated the pace of globalization Accepted Accounting Principles). The same principles have of traditional markets for goods and services over the last ten also been applied to the 2001 figures. years and have intensified the pressure of competition between In order to make the special conditions associated with the traditional, local and global companies and brands. change in accounting transparent and to facilitate comparison Increasing demand for information from small and with the consolidated financial statements for the previous medium-sized enterprises (SMEs). The number of SMEs year, GfK has also produced pro forma statements as well making use of the new Internet communication platforms as the actual financial statements for 2001. The pro forma to operate and expand their business at local, national and statements include the results of five companies that would international level is increasing and their need for market not have been consolidated in 2001 under US GAAP. These are research and marketing expertise is growing in parallel. G.E. Marketing Research and Emer-GfK, both in Spain, GfK Portugal and METRIS, Portugal, for the full twelve months of 64 New innovation-driven business and client potential. the previous year, as well as Intomart GfK in the Netherlands for The new communication and information technologies have the first six months of the previous year. From 1 January 2002, created additional opportunities and stimuli for growth. On all five companies fulfilled the US GAAP requirements for full the basis of these new technologies, a host of new markets for consolidation. new products and services have emerged, for example in the field of telecommunications and innovative domains such as Moreover, the additional pro forma statements for 2001 biochemistry and genetic technology. do not include the scheduled amortization on goodwill of EUR 10.4 million reported in the actual income statement New business potential in the emerging markets. which is to be shown in accordance with the accounting Throughout the world, increasing opportunities for growth are principles of US GAAP which still applied in 2001. From resulting from trends towards liberalization and democratization. 2002 onwards, there are no more scheduled amortization, This applies particularly to the emerging markets in Central and but impairment principles for goodwill amortization. This Eastern Europe, Asia and the Pacific as well as Latin America. did not result in any expenses. Outsourcing of market research services by clients. The pro forma financial statements for 2001 are intended for Companies are increasingly cutting down the size of their comparative purposes in the following1). own market research departments to a minimum and turning instead to comprehensive services from outside market research professionals. Sales and income – double-digit growth In 2002, the GfK Group achieved sales of EUR 559.4 million, up 10.6 per cent on the previous year, a result which raised it to fifth place in the rankings of the world’s leading market research companies. In addition to the contribution of organic growth at a higher than average rate for the sector, a substantial part of this increase came from companies consolidated for the first time in the year under review. They include IFR Group, France, Significant GfK, Belgium, GfK MACON, Germany and the healthcare activities of the I+G Group in Germany, acquired as part of a merger. 1) The percentages given below are all based on absolute values in thousand euros. For ease of legibility, the absolute values are expressed in million euros. Calculating percentages on the basis of the values expressed in million would have led to distortions, particularly for lower numbers. Economic and financial development MANAGEMENT REPORT The item Other income and expenses includes the balance of Earnings1) other income from earlier periods amounting to EUR 0.9 million, 2001 2001 2002 Change amortization on other intangible assets of EUR 2.6 million and In EUR million Actual Pro forma Actual in % currency effects of EUR -2.1 million. Sales 482.1 505.8 559.4 + 10.6 Operating costs – 451.8 – 471.1 – 512.1 – 8.7 The GfK Group increased its EBIT before income from Operating income 30.3 34.7 47.2 + 36.4 participations by 46.6 per cent from EUR 29.8 million in Other income less 2001 to EUR 43.6 million in 2002. The EBIT margin relating to other expenses – 14.5 – 4.9 –3.6 + 25.8 sales also improved markedly from 5.9 per cent in 2001 to EBITDA 52.8 58.0 68.5 + 18.2 7.8 per cent in 2002. as percentage of sales 10.9 11.5 12.2 – EBIT before income Net income from participations rose from EUR 2.9 million in from participations 15.8 29.8 43.6 + 46.6 2001 to EUR 6.4 million in 2002. Depreciation on the shareholding as percentage of sales 3.3 5.9 7.8 – in the bwv Group in Switzerland considerably depressed net income Net income from from participations in 2001. However, no further depreciation participations 3.7 2.9 6.4 + 119.6 was required for this shareholding in 2002. The GfK Group’s EBIT after income from participations 19.5 32.7 50.0 + 53.1 EBIT after income from participations also increased sharply 65 as percentage of sales 4.0 6.5 8.9 – compared with the previous year, rising by 53.1 per cent to Net interest income 0.1 0.0 – 2.3 – EUR 50.0 million in 2002. EBIT after income from participations Net other financial in relation to sales showed a correspondingly clear increase from income – 15.7 – 15.7 – 2.4 + 84.7 6.5 per cent in 2001 to 8.9 per cent in 2002. Result from ongoing business GfK’s Net other financial income also improved from EUR –15.7 activity 3.9 17.0 45.3 + 165.9 million in 2001 to EUR -2.4 million during the past financial Taxes on income year. The figure essentially comprises expenses arising from the and earnings – 10.2 – 11.7 – 15.3 – 30.5 waiver on a loan to MMXI Europe in the Netherlands of EUR Income from the initial application 1.2 million in connection with the sale of this participation, as of SFAS 133 0.2 0.2 0.0 – 100.0 well as the residual depreciation on the holding in American Consolidated total company, Jupiter Media Metrix Inc. (JMXI), of EUR 0.7 million. income before minority interests – 6.1 5.5 30.0 + 449.6 In 2001, net other financial income was influenced by the write- Minority interests’ downs on loans to the bwv Group amounting to EUR 5.9 million share of total and the valuation allowance for JMXI shares of EUR 6.9 million. income 1.4 0.8 – 4.3 –626.2 Consolidated Overall, this had a positive impact on the Result from ongoing total income – 4.7 6.3 25.7 + 308.7 business activity, which rose more than one and a half times 1) Rounding differences may occur from EUR 17.0 million in 2001 to EUR 45.3 million in 2002. Compared with the previous year, the Income tax rate was There was a pleasing increase in Operating income from reduced from 68.7 per cent to 33.7 per cent. The valuation EUR 34.7 million in 2001 to EUR 47.2 million in 2002 (+36.4 per allowance made in 2001 for the participation in JMXI was not tax cent) as a result of sales growth and the below average rise in deductible. Moreover, the depreciation on the holding and the Operating costs (+8.7 per cent), which came in at almost loans to the bwv Group in Switzerland could only be recognized 2 per cent under the rate of increase in sales. The personnel to a very limited extent for tax purposes. cost ratio, which expresses personnel expenses in relation to sales, came down from 44.1 per cent in 2001 to 43.6 per cent in 2002. In absolute terms, personnel expenses amounted to EUR 244.1 million (2001: EUR 223.2 million). Scheduled depreciation, particularly on software and fixtures and fittings fell from EUR 28.2 million in 2001 to EUR 24.9 million in 2002. Current assets remained at the same level as in the The GfK Group: EBIT after income from participations and consolidated total income before minority interests previous year. While there was a reduction in trade receivables 1998 – 2002 in EUR million1) and liquid funds, there was an increase in other receivables 1998 18.2 and assets. The main increase came from tax claims and 10.7 payment on account for the remaining shares in ENIGMA GfK 19992) 26.7 in Germany. 13.7 2000 39.4 Shareholders’ equity rose by EUR 18.4 million to EUR 25.4 181.5 million. The increase is attributable to total consolidated 2001 32.7 income of EUR 25.7 million less the total dividend disbursement 5.5 2002 50.0 and currency effects relating to consolidations reported under 30.0 other comprehensive income. With an increase in total assets 1) Up to 2000, in accordance with the German Commercial 2) Excluding IPO costs of EUR 56.5 million (+13.7 per cent), the Equity ratio as at Code (HGB). From 2001, in accordance with US GAAP. 31 December 2002 amounted to 38.7 per cent (2001: 39.5 per EBIT after income from participations Consolidated total income before minority interests cent). The GfK Group achieved an increase of EUR 24.5 million in 66 Development of equity ratio Consolidated total income before minority interests in per cent, 1998-20021) from EUR 5.5 million in 2001 to EUR 30.0 million in 2002. 1998 30.8 Asset and capital structures continue to remain stable 19992) 52.3 Compared with the previous year, the GfK Group’s Total assets increased by EUR 56.5 million to EUR 469.6 million. 2000 49.6 On the assets side, this increase was almost exclusively 2001 39.5 attributable to growth in Fixed assets. Acquisitions, the topping-up of shareholdings and the merger of the I+G Group 2002 38.7 with GfK in Germany increased goodwill by EUR 51.4 million 1) Up to 2000, in accordance with the German Commercial Code (HGB). From 2001, from EUR 84.2 in 2001 to EUR 135.6 million as at 31 December in accordance with US GAAP. 2002. Software and fixtures and fittings rose by EUR 8.2 million. 2) This percentage includes the change resulting from the IPO, without which the figure With regard to financial assets, the addition resulting from the would have been 29.7. acquisition of Indicator GfK, Brazil offset the disposal of shares in associated companies resulting from the merger of the As at 31 December 2002, minority interests had risen by EUR I+G Group with GfK. 11.1 million to stand at EUR 17.6 million. In addition to the impro- vement in consolidated total income, the main reason for this Balance sheet growth Share increase was the first-time consolidation of Spanish and Portu- of total guese subsidiaries and the IFR Group in France, which also has 31.12.2001 31.12.2002 Change assets In EUR million in % in % minority shareholders. Assets The following factors contributed to the increase in other Fixed assets 208.6 263.8 + 26.5 56.2 Provisions and liabilities by EUR 26.7 million to EUR 263.5 Current assets 189.8 189.8 – 0.1 40.4 million: an increase in provisions of EUR 7.7 million, in particular Deferred taxes 9.1 9.3 + 2.7 2.0 for personnel including pensions, and an increase of EUR 19.0 Prepaid expenses 5.6 6.7 + 20.0 1.4 million in liabilities. Given the financing of newly acquired companies and participations, the increase came mainly from Shareholders’ equity and liabilities liabilities to banks. Shareholders’ equity 163.1 181.5 + 11.3 38.7 Borrowings* 243.3 281.2 + 15.6 59.9 Deferred taxes 5.3 6.0 + 14.0 1.3 Deferred income 1.4 0.9 – 33.8 0.1 Total assets 413.1 469.6 + 13.7 100.0 *Provisions, liabilities and minority interests Economic and financial development MANAGEMENT REPORT Investment and financing Net indebtedness, derived from the balance of cash and Bulk of investment covered by cash flow cash equivalents and short-term securities less interest bearing liabilities and pension provisions, stood at EUR 39.6 million In 2002, GfK’s Investment amounted to EUR 76.6 million (2001: EUR 23.7 million). (2001: EUR 108.3 million). This related essentially to the acquisition of companies and business units (EUR 47.0 million) Gearing and net indebteness in relation and the addition of participations as well as the acquisition of to EBIT, EBITDA, free cash flow software, fixtures and fittings and other tangible assets (EUR In % 2001 2002 28.6 million). Gearing (net indebtedness/shareholders’ equity) 14.5 21.8 Net indebtedness/EBIT 150.2 90.8 Net indebtedness/EBITDA 44.9 57.8 Change in free cash flow Change Net indebtedness/free cash flow 52.8 97.2 In EUR million 2001 2002 in % Cash flow from ongoing business activity 75.9 69.3 – 8.8 Gearing, which is the ratio of net indebtedness to shareholders’ Capital expenditure – 31.1 – 28.6 – 8.1 equity, amounted to 21.8 per cent in 2002 (2001: 14.5 per Free cash flow before cent). The ratio of net indebtedness in relation to EBIT, EBITDA 67 acquisitions, other investment and asset disposals 44.8 40.7 – 9.2 and free cash flow shows that GfK is in a position to repay its bor- Acquisitions – 60.2 – 47.0 – 21.9 rowings in less than one year. Other financial investment – 17.0 – 1.0 – 94.1 In addition to the investment reported in the balance sheet, Asset disposals 4.1 3.4 – 17.1 the GfK Group used EUR 32.2 million for Soft facts (2001: Free cash flow after EUR 30.2 million). These intangible assets are not capitalized acquisitions, other investment and asset disposals – 28.3 – 3.9 + 86.2 but are charged directly to the income statement. They include, in particular, expenses for setting up and maintaining panels, non-capitalized costs of proprietary software as well as the The ongoing capital expenditure was fully financed from the costs of training and continuous professional development. Cash flow from ongoing business activity of EUR 69.3 mil- This investment is essential to securing the long-term success lion (2001: EUR 75.9 million). Net of these expenses amounting of the company, as it contributes to the creation of market entry to EUR 28.6 million, Free cash flow of EUR 40.7 million (2001: barriers. EUR 44.8 million) remains. This was sufficient to finance 84.9 per cent of acquisitions and other financial investment during Expenses for soft facts the past year. In 2001, the equivalent figure was 58.1 per cent Change due to a higher level of investment. In EUR million 2001 2002 in % Costs of maintaining panels GfK was able to reduce the inflow of funds in connection (including recruitment) 17.0 19.5 + 14.9 with financing activity from EUR 16.8 million in 2001 to Software development costs 7.4 7.1 – 3.9 EUR 2.9 million in 2002. Training and continuous professional development 5.1 5.0 – 3.6 Other 0.7 0.6 – 10.3 Change in net indebtedness Total 30.2 32.2 + 6.6 Change In EUR million 31.12.2001 31.12.2002 in % Source: Management Information System Liquid funds 47.6 45.2 – 5.0 Short-term securities 8.0 7.3 – 8.7 Liquid funds and The 14.9 per cent increase in panel costs results from the higher short-term securities 55.6 52.5 – 5.6 maintenance payments made to panel households and retailers Liabilities to banks 24.8 47.1 + 89.9 and for extending panels. Pension obligations 17.5 19.2 + 10.1 Liabilities under leases 16.3 15.8 – 3.2 Other interest-bearing liabilities 20.7 10.0 – 51.3 Interest-bearing liabilities 79.3 92.1 + 16.2 Net indebtedness – 23.7 – 39.6 – 67.3 3. Business divisions During the past financial year, GfK’s operating income rose at an above average rate. The figure of EUR 48.3 million for The GfK Group provides services in its four business divisions 2002 represented a 47.9 per cent increase over the EUR 32.7 Consumer Tracking, Non-Food Tracking, Media and Ad Hoc million recorded for the previous year. The margin relating Research. The division Other comprises GfK AG internal services to consolidated sales improved accordingly from 6.5 per cent as well as some of the activities in the healthcare segment, to 8.6 per cent. which are currently being set up. The financial data presented below comes from the Management Share of business divisions in total sales Information System. All of the figures reported have been In % In EUR million prepared in accordance with US GAAP. No account is taken of 5% 15 % Consumer Tracking 15 86.0 minority interests. Net income from participations is therefore Non-Food Tracking 25 137.3 not included in the operating income. 44 % Media 11 61.3 In order to improve transparency in annual comparisons, as Ad Hoc Research 44 246.3 25 % referred to in the presentation of the economic development of Other 5 28.5 the GfK Group, pro forma statements have also been prepared 11% Total 100 559.4 68 for the divisions for 2001. The explanations below are all based on a comparison of the figures for 2002 with those from the pro forma statements. Consumer Tracking – growth trend continues Sales for the Group in all business divisions in 2002 were up GfK’s Consumer Tracking division provides clients in 24 coun- by 10.6 per cent from EUR 505.8 million to EUR 559.4 million. tries throughout Europe with information services on consumer While newly consolidated business activities in the GfK Group purchase decisions and behaviour. These cover almost all fast contributed 7.8 per cent to the growth in sales, organic growth moving consumer goods plus a large number of slow moving accounted for 3.5 per cent. Excluding projects with fixed order consumer goods and services. Clients include in particular volumes, organic growth amounted to 5.3 per cent. Currency brand manufacturers, retailers and service providers. effects played a minor role, reducing sales growth by 0.7 per cent. Consumer Tracking: key figures GfK Group: breakdown of growth 2001 2001 2002 Change in sales and operating income In EUR million Actual Pro forma Actual in % Sales 84.8 84.8 86.0 + 1.4 Total growth Operating income – 0.2 – 0.2 2.4 + 1,296.0 + 10.6 % Margin in % – 0.2 – 0.2 + 2.8 – + 47.9 % Number of employees 788 788 863 + 9.5 Growth through acquisitions + 7.8 % of which abroad 564 564 590 + 4.6 + 31.4 % Organic growth + 3.5 % During financial year 2002, GfK’s Consumer Tracking division + 17.2 % achieved consolidated sales of EUR 86.0 million. The 1.4 per Exchange rate effects – 0.7 % cent increase on the previous year was almost exclusively due – 0.7 % to organic growth, with the GfK companies outside Germany Sales Operating income providing the main impetus. By contrast, sales in Germany were slightly below the figure for the previous year. GfK Business Divisions MANAGEMENT REPORT Consumer Tracking: breakdown of growth Non-Food Tracking: key figures in sales and operating income 2001 2001 2002 Change Total growth In EUR million Actual Pro forma Actual in % + 1.4 % Sales 119.5 122.2 137.3 + 12.4 + 1,296.0 % Operating income 17.5 19.7 24.5 + 24.5 Growth through acquisitions Margin in % + 14.6 + 16.1 + 17.8 – – 0.1 % + 907.1 % Number of employees 1,125 1,234 1,394 + 13.0 Organic growth of which abroad 896 1,005 1,145 + 13.9 + 1.1 % + 405.7 % Exchange rate effects During the year under review, the division succeeded in further + 0.4 % – 16.8 % extending its leading position in the global markets. Sales increased by 12.4 per cent from EUR 122.2 million in 2001 to Sales Operating income EUR 137.3 million in 2002, of which 8.5 per cent came from organic growth. This was the highest organic growth rate of There has been a clear rise in operating income. Following all the GfK divisions. Currency effects, particularly in Asia, 69 EUR –0.2 million in 2001, operating income rose to depressed sales growth by 1.7 percentage points. First-time EUR 2.4 million in 2002. The margin also improved from consolidations, mainly of the IFR Group as at 1 July 2002, –0.2 per cent in 2001 to 2.8 per cent in 2002. This is mainly contributed EUR 6.9 million to the rise in sales. attributable to the consistent restructuring measures in the division and to cost savings brought about by using the Despite considerable investment on innovations in this segment, standard production system aTRACKtive. such as the further development of the S*T*A*R*T*R*A*C*K analysis and production system and the ENCODEX software At the end of 2002, the Consumer Tracking division employed used for B2B online trading in consumer durables, operating 863 full-time personnel, of which 68.4 per cent working income of the Non-Food Tracking division was up 24.5 per cent outside Germany. The number of employees increased by from EUR 19.7 million to EUR 24.5 million. Around half of this 75 compared with the previous year due to the insourcing of increase is attributable to companies consolidated in the GfK personnel from the data collection department of GfK Data Group for the first time. The remainder is mostly due to the Services. progress of business development in Europe. As a result of the overproportional rise in operating income, the margin increased Non-Food Tracking – leading position further extended from 16.1 per cent to 17.8 per cent. GfK’s Non-Food Tracking division provides clients with Non-Food Tracking: breakdown of growth information services regarding sales of consumer durables in sales and operating income and services, particularly in the IT, consumer electronics, telecommunications, household appliances and photographic Total growth + 12.4 % markets. Its clients are mostly global manufacturers of + 24.5 % consumer durables and they receive this information on Growth through acquisitions 44 countries worldwide, which include thirteen countries + 5.6 % in Asia and the Pacific, the USA and Latin America, the + 12.8 % Organic growth Middle East and South Africa. + 8.5 % + 12.8 % Exchange rate effects – 1.7 % – 1.1 % Sales Operating income The Non-Food Tracking division employ 28.6 per cent of the This trend is attributable in particular to the difficult print GfK workforce. Of the 1,394 personnel, 82.1 per cent were media market caused by the weak economy, which led to employees in GfK companies abroad. Compared with the 2001 lower incoming orders. However, growth in continuous media figures, the number of staff in Germany increased by research was able to partially offset this decrease in orders. 20 and outside Germany by 140. The long-term contracts for TV and radio ratings research generate around 60 per cent of the Media division’s sales. In 2002, GfK extended two long-term TV research contracts Media – affected by the crisis in the print media in Belgium and France and won a new contract in the Ukraine. The Media division provides its clients with information There are therefore long-term TV research surveys in place in services on the intensity and nature of media usage and media a total of seven different countries. acceptance. The offering covers the classic media such as Media is the smallest of the GfK divisions in terms of personnel, television, radio, print and outdoor advertising and the new employing 345 people or 7.1 per cent of the total workforce. online and offline media. GfK conducts media research in 20 Foreign personnel accounts for 57.7 per cent of the total. European countries and its clients are predominantly private Compared with the previous year, the number of employees in and public service TV and radio stations, publishing houses, the Media division was reduced by 6.5 per cent. The main advertisers and advertising and media agencies. 70 reason for this is that the company is pursuing a wait and see In 2002, the Media division was unable to match the level of approach with regard to filling the places of employees who have sales achieved in the previous year. Consolidated sales fell left, given the current economic climate. slightly by 2.1 per cent to EUR 61.3 million after EUR 62.6 million in 2001. The drop in sales at the GfK media companies Ad Hoc Research – amounted to 7.9 per cent in organic terms. growth achieved despite economic decline Media: key figures Through its own companies, the Ad Hoc Research division provides clients in 29 countries around the world and via partnerships 2001 2001 2002 Change in another 61 countries with partly standard, partly customized In EUR million Actual Pro forma Actual in % services, which are used for operational and strategic business Sales 56.5 62.6 61.3 – 2.1 decisions. These services include tests and surveys on product Operating income 8.5 9.2 6.1 – 34.4 and pricing policy, brand management and valuation, communi- Margin in % + 15.0 + 14.7 + 9.9 – cation, distribution and customer loyalty schemes as well as new Number of employees 369 369 345 – 6.5 product development. of which abroad 221 221 199 – 10.0 As its work is project-related, the Ad Hoc Research division is more susceptible to economic trends than the tracking business, The trend in operating income was similar. Following the high where the contracts are long term. It is therefore particularly figure achieved in 2001 of EUR 9.2 million, the Media division pleasing that in 2002, the Ad Hoc Research division achieved generated operating income of EUR 6.1 million in 2002. a 14.8 per cent increase in sales to EUR 246.3 million from The margin consequently dropped from 14.7 per cent to 9.9 EUR 214.5 million. Of this growth, 8.0 percentage points are per cent. organic and 7.7 percentage points of the sales growth are attributable to the expansion of the global GfK network. The Media: breakdown of growth in sales and operating income companies consolidated for the whole year for the first time in 2002 include, in particular, Martin Hamblin GfK, UK, GfK MACON, Total growth Germany and Intercampus, Portugal. Significant GfK, Belgium – 2.1 % was consolidated for the first time for part of the period under – 34.4 % review. Currency effects reduced sales by 0.9 percentage Growth through acquisitions + 5.2 % points. + 2.9 % Organic growth – 7.9 % – 38.2 % Exchange rate effects + 0.6 % + 0.9 % Sales Operating income GfK Business Divisions MANAGEMENT REPORT services for companies in the GfK Group and their business Ad Hoc Research: key figures partners. Their aim is to offer services which cover the costs 2001 2001 2002 Change involved. In EUR million Actual Pro forma Actual in % In addition to data collection, data processing and data analysis, Sales 199.6 214.5 246.3 + 14.8 GfK Data Services and GfK Ad Hoc Services also supply Operating income 2.8 4.2 14.5 + 243.9 central IT services. As a cross-divisional unit, GfK Methoden- Margin in % + 1.4 + 2.0 + 5.9 – und Produktentwicklung (Method and Product Development) Number of employees 1,578 1,726 1,745 + 1.1 develops new procedures, methods and techniques and tests of which abroad 1,204 1,352 1,371 + 1.4 them in market research surveys. GfK Group Services comprises all the central administrative departments and divisions of During the reporting period, operating income more than tripled, GfK AG, which include Financial Services, Personnel Services, rising from EUR 4.2 million in 2001 to EUR 14.5 million. New Central Services, Public Affairs and Communications, Investor consolidations accounted for EUR 2.6 million, but at EUR 7.7 Relations and Internal Audit. million the largest portion of the rise was organic. In addition to The newly acquired healthcare activities are also reported under the positive trend in sales and the restructuring of the Swedish Other for financial year 2002. These cover Martin Hamblin activities in Internet market research, strict cost management 71 GfK Healthcare UK, which was consolidated as at 1 July 2001 and further measures to increase efficiency also made a decisive for the first time and the business services, GfK HealthCare and contribution to the result. There was a strong increase in the GPI Kommunikationsforschung, both based in Germany, and margin which rose from 2.0 per cent in 2001 to 5.9 per cent in which were acquired as part of the takeover of the business 2002. activities of I+G, which was previously run as a joint venture with NFO Infratest. These companies were consolidated for the Ad Hoc Research: breakdown of growth in sales and operating income first time as at 1 July 2002. Total growth Other: key figures + 14.8 % + 243.9 % 2001 2001 2002 Change Growth through acquisitions In EUR million Actual Pro forma Actual in % + 7.7 % Sales 21.6 21.6 28.5 + 31.8 + 61.9 % Operating income – 0.2 – 0.2 0.9 + 484.4 Organic growth + 8.0 % Margin in % – 1.1 – 1.1 + 3.2 – + 183.6 % Number of employees 536 536 532 – 0.7 Exchange rate effects of which abroad 68 68 109 + 60.3 – 0.9 % – 1.6 % Sales Operating income In 2002, the Other division achieved consolidated sales of EUR 28.5 million compared with EUR 21.6 million in the As at 31 December 2002, the Ad Hoc Research division employed previous year. The considerable reduction in services provided 1,745 staff, of which 1,371 in GfK companies outside Germany. by IRI/GfK, resulting from the cessation of physical data The number of employees remained virtually unchanged from collection in Germany, led to a drop in order volume of around the previous year. EUR 5 million for this central GfK service provider. This is the reason for organic growth amounting to -26.8 per cent in the period under review. However, sales by the newly acquired Other – providing internal services companies in the healthcare segment more than compensated The Other division primarily comprises the central services for this downturn. The new companies are also largely responsible of GfK AG as well as some of the activities being built up in for improving operating income from EUR –0.2 million in 2001 healthcare information services. to EUR 0.9 million in 2002. GfK Data Services, GfK Ad Hoc Services, GfK Methoden- und Produktforschung and GfK Group Services provide Number of GfK employees 1998-2002 Other: breakdown of growth in Germany and abroad in sales and operating income Total 1,282 1,829 Total growth 1998 3,111 + 31.8 % + 484.4 % 1,366 2,310 1999 3,676 Growth through acquisitions + 58.3 % 1,345 2,867 2000 + 1,299.6 % 4,212 Organic growth 1) 1,443 3,210 2001 – 26.8 % 4,653 – 808.8 % 1,465 3,414 2002 Exchange rate effects 4,879 + 0.3 % 1) Pro forma statement In Germany Abroad – 6.4 % Sales Operating income Share of regions in total sales1) As at the end of 2002, the Other division employed 532 72 7% In % In EUR m personnel (2001: 536). 5% 5% Germany 37 204.7 37 % Northern Europe 11 59.1 4. Regions Western and Southern Europe 35 196.7 As with the presentation of the business divisions, the financial Central and data on regions reported below is extracted from the Management Eastern Europe 5 28.5 Information System. As minority participations were not taken 35 % 11 % America 7 40.4 into account, operating income does not include income from Asia and the Pacific 5 30.1 participations. Total 100 559.4 1) Rounding differences may occur In order to improve transparency in annual comparisons, as referred to initially in the presentation of the economic development of the GfK Group, a pro forma statement has Germany – growth through acquisitions been prepared for 2001, including for the data of the regions. All following explanations are based on a comparison of the In Germany, the home country of the GfK Group and still the values for the year 2002 with the pro forma figures. most important single market for the company, GfK has fifteen active subsidiaries and participations, ten of which have their GfK Group sales 1998-2002 registered office in Nuremberg. in Germany and abroad in EUR million1) Total In 2002, the company generated 36.6 per cent of consolidated 156 156 sales in Germany. Sales increased from EUR 192.4 million 1998 312 to EUR 204.7 million (+6.4 per cent). This growth was mainly 164 217 19992) attributable to GfK MACON, GfK HealthCare and GPI 381 Kommunikationsforschung, which were consolidated for the 177 293 2000 first time in 2002. In organic terms, sales fell slightly by 1.9 per 470 2) 192 314 cent, primarily as a result of the approximately EUR 5 million 2001 506 reduction in data collection services by IRI/GfK. In addition, the 205 354 2002 crisis in the print media sector impacted on sales at some of 559 the German GfK companies. The positive business development 1) From 2001 in accordance with US GAAP In Germany Abroad 2) Pro forma statement in Non-Food Tracking was not entirely sufficient to offset the weaker sales in these areas. Regions MANAGEMENT REPORT In Northern Europe, the GfK Group has ten subsidiaries in Germany: key figures Scandinavia and the UK, which generated 10.6 per cent of 2001 2001 2002 Change consolidated sales in 2002. Compared to the previous year’s In EUR million Actual Pro forma Actual in % sales of EUR 52.0 million, GfK achieved growth in 2002 of Sales 192.4 192.4 204.7 + 6.4 13.8 per cent to EUR 59.1 million. The greater part of this Operating income 15.1 15.1 18.0 + 19.4 growth resulted from the healthcare activities acquired in Margin in % + 7.8 + 7.8 + 8.8 – the UK. Currency effects amounted to -0.4 percentage points. Number of employees 1,443 1,443 1,465 + 1.5 Northern Europe: key figures During the period under review, operating income rose 2001 2001 2002 Change from EUR 15.1 million to EUR 18.0 million (+19.4 per cent). In EUR million Actual Pro forma Actual in % The companies consolidated for the first time contributed Sales 52.0 52.0 59.1 + 13.8 EUR 4.3 million to this increase. However, organic growth saw Operating income – 3.7 – 3.7 1.9 + 150.2 a reduction of 8.9 per cent, as the positive developments in Margin in % – 7.1 – 7.1 + 3.2 – the Ad Hoc Research and Non-Food Tracking divisions were Number of employees 528 528 500 – 5.3 insufficient to absorb the reduced income of the Media division, 73 which resulted from lower sales in this division. The sales- Growth in operating income in the past financial year has been related margin increased from 7.8 per cent to 8.8 per cent. very pleasing. After posting a loss of EUR 3.7 million in 2001, the GfK companies in Northern Europe achieved positive results Germany: breakdown of growth of EUR 1.9 million in 2002. This is due, above all, to the success in sales and operating income of restructuring measures at Martin Hamblin GfK, UK and to Total growth Orange Interactive Research which carries out Internet market + 6.4 % research in Sweden. The margin rose from -7.1 per cent in 2001 + 19.4 % to 3.2 per cent in 2002. Additional measures are aimed at further Growth through acquisitions improving the margin in this region. + 8.3 % + 28.3 % Organic growth Northern Europe: breakdown of growth – 1.9 % in sales and operating income – 8.9 % Exchange rate effects 0.0 % Total growth 0.0 % + 13.8 % + 150.2 % Sales Operating income Growth through acquisitions + 14.2 % + 79.1 % As at 31 December 2002, GfK employed 1,465 full-time person- Organic growth nel in Germany, the great majority at the Nuremberg site. The 0.0 % + 72.4 % number of employees rose by 22 compared with the previous Exchange rate effects year. 30.0 per cent of GfK’s worldwide workforce is employed by – 0.4 % Group companies in Germany. – 1.3 % Sales Operating income Europe – pleasing increase in operating income At the end of 2002, the GfK Group employed 500 personnel in In Northern, Southern and Western Europe, GfK has 73 subsidia- Northern Europe. This represents 10.2 per cent of the total ries, branches and participations in sixteen different countries. workforce. The number of employees was down 5.3 per cent on As in Germany, GfK companies are the number one market the previous year’s figure. research organizations in Austria and Switzerland, the number two in Sweden and the Netherlands, the number three in Denmark and Italy and the number four in France. The Western and Southern Europe region which comprises In Central and Eastern Europe, where GfK is one of the 63 companies in eleven countries, represents the next important leading providers of market research services with a total of 18 region for the GfK Group after Germany. With sales of EUR companies in 13 countries, the Group’s business development 196.7 million, GfK generated 35.2 per cent of its consolidated was once again very successful. Although the region only sales there. Compared to sales of EUR 171.9 million in the accounts for 5 per cent of consolidated total sales, making it the previous year, this represents an increase of 14.4 per cent, smallest in the GfK Group, it is also one of the most dynamic and of which 6.5 percentage points were attributable to organic it has grown very fast for years. The double-digit growth rates in growth. The companies consolidated for the first time in 2002, sales and income are purely the result of organic growth. which were essentially the IFR Group in France, Intercampus in Portugal and Significant GfK in Belgium, accounted for 7.3 Central and Eastern Europe: key figures percentage points of sales growth. Exchange gains played a minor role, accounting for 0.6 percentage points. 2001 2001 2002 Change In EUR million Actual Pro forma Actual in % Sales 23.5 23.5 28.5 + 21.1 Western and Southern Europe: key figures Operating income 1.3 1.3 2.6 + 97.5 Margin in % + 5.5 + 5.5 + 9.0 – 2001 2001 2002 Change 74 In EUR million Actual Pro forma Actual in % Number of employees 579 579 634 + 9.5 Sales 148.3 171.9 196.7 + 14.4 Operating income 12.0 16.4 19.7 + 20.6 In 2002, the GfK companies in Central and Eastern Europe Margin in % + 8.1 + 9.5 + 10.0 – increased their sales from EUR 23.5 million to EUR 28.5 million Number of employees 1,409 1,666 1,787 + 7.3 (+ 21.1 per cent). Operating income doubled in the same period from EUR 1.3 Operating income for the region rose from EUR 16.4 million million to EUR 2.6 million. The margin relating to sales therefore in 2001 to EUR 19.7 million in 2002 (+ 20.6 per cent). This improved from 5.5 per cent to 9.0 per cent. increase was largely due to the first-time consolidation of the above companies. At the same time, there was an increase of 5.6 per cent in organic growth, thanks, in particular, to Central and Eastern Europe: breakdown of growth in sales and operating income successful restructuring measures and cost cutting programmes. The margin increased from 9.5 per cent in 2001 to 10.0 per Total growth cent in 2002. + 21.1 % + 97.5 % Western and Southern Europe: breakdown of growth Growth through acquisitions in sales and operating income 0.0 % 0.0 % Organic growth Total growth + 21.8 % + 14.4 % + 100.4 % + 20.6 % Exchange rate effects Growth through acquisitions – 0.7 % + 7.3 % – 2.9 % + 14.4 % Organic growth Sales Operating income + 6.5 % + 5.6 % Exchange rate effects At the end of the reporting period, the number of full-time + 0.6 % employees was 634, 55 more than at the end of 2001. + 0.6 % Sales Operating income America – good progress As at 31 December 2002, the workforce for Western and GfK has been active in the USA through its subsidiary Southern Europe stood at 1,787 employees, 121 more than the GfK Custom Research, since 1999. The company is part of previous year. Over 100 personnel were taken on as a result of GfK’s Ad Hoc Research division and specializes in surveys the acquisition of new companies in this region. on customer satisfaction and product concepts. GfK expanded its position in the US with Martin Hamblin GfK Research, which Regions MANAGEMENT REPORT was acquired in mid-2001 and is active in the pharmaceutical In this region, the GfK Group only operates in the Non-Food segment. Tracking segment. In 2002, sales amounted to EUR 30.1 million, which is a rise of 3.1 per cent on the previous year. The growth In America, the GfK Group achieved consolidated sales of rate is seriously affected by currency effects, which reduced sales EUR 40.4 million. Compared with the previous year, this is by 6.9 percentage points. Organic growth amounted to an increase of 9.7 per cent. Net of currency effects amounting 7.7 per cent. The only acquisition in the region, Informark in to -5.8 percentage points, organic growth amounted to 8.5 Australia, contributed 2.3 percentage points to sales growth. per cent. Asia and the Pacific: key figures America: key figures 2001 2001 2002 Change 2001 2001 2002 Change In EUR million Actual Pro forma Actual in % In EUR million Actual Pro forma Actual in % Sales 29.2 29.2 30.1 + 3.1 Sales 36.8 36.8 40.4 + 9.7 Operating income 2.2 2.2 3.0 + 40.2 Operating income 1.5 1.5 3.1 + 112.1 Margin in % + 7.4 + 7.4 + 10.1 – Margin in % + 4.0 + 4.0 + 7.7 – Number of employees 302 302 355 + 17.5 Number of employees 135 135 138 + 2.2 75 Despite unfavourable exchange rates, the region improved its Operating income more than doubled during the period operating income in the reporting year from EUR 2.2 million under review. After income of EUR 1.5 million in the previous to EUR 3.0 million. This pleasing increase of 40.2 per cent was year, this figure rose to EUR 3.1 million in 2002. The majority largely organic. The rise in the margin was also high, up from of this growth was organic. Currency effects reduced the 7.4 per cent to 10.1 per cent. increase in income by almost 6 percentage points. The margin relating to consolidated sales almost doubled from 4.0 to 7.7 per cent. Asia and the Pacific: breakdown of growth in sales and operating income America: breakdown of growth Total growth in sales and operating income + 3.1 % + 40.2 % Total growth Growth through acquisitions + 9.7 % + 2.3 % + 112.1 % + 3.5 % Growth through acquisitions Organic growth + 7.0 % + 7.7 % + 43.1 % + 44.2 % Organic growth Exchange rate effects + 8.5 % – 6.9 % + 74.7 % – 7.5 % Exchange rate effects Sales Operating income – 5.8 % – 5.7 % Sales Operating income At the year-end, there were 355 people employed in the Asia and Pacific region, an increase of 53 over the previous year. At the year-end, the GfK Group employed 138 full-time staff in America. The figure remained almost unchanged from the The GfK network – further expansion previous year. In 2002, the GfK Group continued to expand its international network. The following table lists the main activities in 2002. Asia and the Pacific – currency effects countered by strong growth The Asia and Pacific region comprises 17 GfK companies, branches and participations in 13 countries including Australia, China, Indonesia and Japan. risks and lays down specific countermeasures. Exceptional risk Company Region Division Classification reporting ensures that the Management Board is kept informed GfK-Belgrade Central and Consumer Tracking Establishment Serbia and Montenegro Eastern Europe Ad Hoc Research of risks at shorter intervals. GfK MACON, Germany Germany Ad Hoc Research Acquisition In addition, a range of planning, forecasting and reporting IFR-Group, France Western and Non-Food Tracking Acquisition instruments for early risk identification has also been in place Southern Europe at the GfK Group for many years. Significant GfK, Western and Ad Hoc Research Acquisition Belgium Southern Europe The relevant processes and responsibilities are laid down in m2A, France Western and Other Acquisition Southern Europe (Healthcare) the Group’s Risk Management Manual, which was updated and Strateji GfK, Turkey Central and Ad Hoc Research Acquisition expanded in 2002. Eastern Europe The individual risk areas are detailed below. Indicator GfK, Brazil America Ad Hoc Research Acquisition Informark, Australia Asia and Non-Food Tracking Acquisition the Pacific Individual risks – ORG-GfK Marketing Asia and Non-Food Tracking Increase in Services, India the Pacifik shareholding take precautions and weigh up the odds Intercampus, Portugal Western and Ad Hoc Research Increase in Economic risks. The poor economic situation continued 76 Southern Europe shareholding throughout the period under review. Despite the difficult ProCon GfK, Turkey Central and Non-Food Tracking Increase in Eastern Europe Ad Hoc Research shareholding economic conditions however, the GfK Group achieved its GfK HealthCare, Germany Other Inclusion/ targets in 2002 and held its own against the competition. Germany (Healthcare) demerger GPI Kommunikations- Germany Other Inclusion/ The weak economy led to an increase in bad debts due to forschung, Germany (Healthcare) demerger client insolvency but these remained at a low level during the past financial year and did not affect the liquidity position of the Group. 5. Risk report Sector risks. The continued poor performance of the economy has again confirmed that the market research sector is less The GfK Group ranks fifth among the world’s leading market prone to cyclical fluctuations than the marketing and advertising research institutes. The Group intends to carry on taking every sectors. Moreover, as GfK operates worldwide and offers a opportunity to improve its market position through continuous comprehensive range of market research services, it is able to growth. However, seizing opportunities also entails running compensate for fluctuations in orders in one area, such as the risks. By identifying material risks at an early stage and taking Media division is currently experiencing in Germany due to appropriate countermeasures, GfK is in a position to make the difficult print media industry at the present time, through commercially sound use of the opportunities which present increases in other sectors and regions. themselves. Although GfK has many leading international manufacturers All aspects of risk management are incorporated in a compre- of consumer goods as clients, its dependence on major hensive early risk warning system, which GfK has operated for clients overall is quite small. GfK’s top ten customers account several years and is constantly developing. As in the past, so this for no more than around sixteen per cent of worldwide Group year too, the Group’s auditors have confirmed the effectiveness sales. of this system. The ongoing process of concentration through mergers and company takeovers has resulted in the marketing budgets of Risk management system – comprehensive and integrated some clients being reduced. GfK has taken measures to counter Thanks to its integrated risk management system, the GfK Group this by intensifying new business acquisition and extending is able to identify and manage strategic and operational risks at its range of services. the level of the individual GfK companies, the level of the four The Management Board is closely following the increasing business divisions and at Group level. The core of the system is tendency towards concentration in the market research sector. the annual risk inventory, which covers the development of the It assesses the potential risks and opportunities and takes risks identified in the previous year, determines newly emerged account of them in appropriate strategic measures. Risk report MANAGEMENT REPORT Operating risks. Qualified and motivated personnel are the Financing is therefore available on a broad and secure biggest asset of any successful company in the service sector. basis. During the past year, GfK once again introduced numerous As surplus liquidity is only used for near-money market measures designed to increase the satisfaction and qualifications investment and a share position was completely unwound, of its employees even further. These included the employee there are no risks from a fall in the equity markets. survey conducted once again within GfK companies in Germany, the second project under the Excellence programme for the Currency risks within the GfK Group remained limited in 2002, promotion of young executives worldwide and EUR 5 million because 63 per cent of consolidated sales was generated by invested in training and continuous professional development. companies in the euro zone. Currency risks arising from third party obligations exceeding a certain figure are hedged through Given the economic situation, there was less pressure on the appropriate futures contracts. labour market during the past year, which in turn reduced personnel related risks by comparison with previous years. To hedge future dividend income in Swiss francs, a cross- currency swap was arranged which, at the reporting date, On the other hand, cost pressures continued to intensify showed a negative market value and was taken into account during 2002. With discount competitors offering services at under expenses. dumping prices to gain a foothold in the market, clients 77 proved more price-sensitive than in recent years. At the same Legal risks. The obligatory social security already introduced time, there was an increasing demand for cost-intensive for interviewers in many European countries is set to be consultancy services and integrated data solutions. To remain extended to other countries. This will increase the Group’s competitive and succeed in the market, GfK responded to cost burden. these developments with continuous process optimization, At the present time, there are no significant risks in respect cost-cutting programmes and a high degree of innovation of pending legal actions or compensation claims. throughout the Group. GfK also took account of the increasing demand from internationally operating clients for standardized IT and other risks. The security and constant availability cross-border information services by targeted expansion in of data are prerequisites for a company selling information- the relevant markets and regions. based products. For that reason, GfK has taken extensive precautions over the years to guarantee high standards of IT Financing risks. The financing of the GfK Group is essentially security. In addition, the Group conducted a comprehensive provided by GfK AG. In addition, subsidiaries have taken out security check in 2002. The Chief Information Officer (CIO) their own loans to a small extent. has the task of ensuring effective coordination and optimization Overall, net indebtedness of the GfK Group is at a low level. of IT strategies and IT security concepts throughout the Group. GfK AG has short-term credit facilities from banks amounting to GfK is currently also developing a disaster recovery plan, almost EUR 100 million, only just under 20 per cent of which which will incorporate existing security concepts and add had been used at the year-end. In addition, innovative GfK AG further components and is not limited to IT. projects were promoted by the Kreditanstalt für Wiederaufbau The acquisition of new companies and their integration into (KfW) within the framework of the ERP Innovation Programme. the Group is always associated with risks. GfK prepares As at 31 December 2002, this support was valued at EUR 2.9 for such risks by extensive due diligence checks prior to million. There is the possibility of calling up additional funds any acquisition and by acquisition supporting measures. The from this programme. specialist team available for this purpose can be backed as In addition to borrowings, GfK AG has the option to obtain addi- necessary by outside consultants. Comprehensive integration tional equity through its authorized capital of 8.2 million no-par plans facilitate the smooth integration of new companies into shares. Further liquid funds are available within the Group. the GfK Group. Overall risk – countering economic risks • improvement and updating of existing instruments The main risks facing companies today stem from the • development and application of multivariate analysis unfavourable global economy. However, even in these methods difficult times, the GfK Group has held its own in the market. • validation and reliability testing of new instruments and Moreover, the Group’s equity ratio remains high (38.7 per services cent), contributing to a considerable reduction in the risk position. • advice and support for special statistical questions. In summary, there are no risks at present which could In addition, many different GfK companies have their own jeopardize the continued existence of the Group. departments responsible for the development, standardization and optimization of services and survey and production procedures. 6. Research and development Finally, Telecontrol, a Swiss-based GfK subsidiary, specializes As one of the world’s oldest established and most successful in the development of hardware and software for TV and radio market research organizations, GfK has made decisive ratings research. contributions to the development of innovative methods and 78 instruments in this field. These range from the purchasing GfK – which itself originated from the University of Erlangen- power indicators, which were GfK’s first ever product and the Nuremberg – cooperates with academic and research institutes first standardized market research instrument used in Germany, in Europe and the USA. Since 2001, it has been a member of right up to Radiocontrol, an instrument for the electronic the renowned Marketing Science Institute in the USA. measurement of radio and television ratings, which was first As regards innovation in the field of information and used on behalf of clients worldwide in 2001. communication technology, GfK was involved in significant new developments in 2002 in the following areas: Aims and organization – continuous innovation • data collection technology For GfK, innovation and the continuous improvement of its • data analysis procedures instruments for information gathering, analysis and delivery are strategic goals. By these means, the Group seeks to respond • market research services proactively to the ever increasing demands of its clients • information management. and to stay ahead of its competitors by achieving a leading position in terms of the quality, innovation and efficiency of its instruments and services. Data collection technology – miniaturization and high-tech A characteristic feature of many of the GfK Group’s R&D projects is that they are planned and implemented in cooperation with The Consumer Tracking division has developed a new platform, its clients. The newly developed instruments and procedures for the Electronic Consumer Panel Online (ECPO), which is these projects are then tested and validated and finally estab- capable of gathering information on the purchasing behaviour lished as standard services. of households and individuals by means of a whole range of electronic technologies such as Internet applications, Personal GfK has a central method and product development department Digital Assistants (PDAs), mobile phones etc. The testing of new (GfK Methoden- und Produktentwicklung) staffed by 18 statistics applications of this kind of data collection technology is currently specialists and method experts with responsibility for the following in progress at GfK subsidiaries in Sweden and Switzerland. tasks: The new procedures are all compatible with aTRACKtive, the • development of new market research methods and services production platform presently being introduced throughout Europe. • design and programming of production software for new instruments Research and development MANAGEMENT REPORT Data analysis procedures – The Ad Hoc Research division also tested and introduced new added value through data merging and integration services in 2002, including: During 2002, GfK was intensively involved in the further • a new module for the BASS (Brand ASsessment System) development and testing of data merging technologies. This service package to determine the financial value of brands. Integrated Intelligence work is intended to compile the research The paper on the methodological principles of the measure- findings and panel information from various Group divisions, ment procedure was rated the best method contribution of which can then be used for complex client marketing surveys. the year at the 2002 annual conference of ESOMAR, the European market research association. In addition to tried and tested instruments for analysis such as MOVE, GfK has developed further Integrated Intelligence • two instruments developed on game theory assumptions instruments for detailed analysis of target groups and results and procedures permitting, on the one hand, consumer goods monitoring. These include, for example, the Gain and Loss manufacturers to optimize the extension of brand families Forecast, a qualitative instrument for target group segmentation, and, on the other, the retail and branded article industry to as well as a series of procedures for the construction of complex, determine the key factors of satisfaction and dissatisfaction for client-specific cause and effect analyses to illustrate the success customer loyalty management. of media and marketing activities. 79 Another innovative tool developed by GfK in the context of its Information management – Integrated Intelligence work is the CSS® questionnaire splitting full service round the clock procedure, which considerably reduces the costs associated In the year under review, GfK also continued the intensive with oral and written surveys. development of two of its core production and analysis systems and tested these in cooperation with its clients. Both systems Market research services – are modern, complex data warehouse and software systems efficiency and added value in marketing that can be used on a decentralized basis. They offer clients the possibility of direct access to GfK’s databases. During the course of 2002, GfK’s Consumer Tracking division developed and introduced a number of new services within the The first project, aTRACKtive.web, relates to the ConsumerScan framework of the ConsumerScan panel. panel operated by GfK Consumer Tracking. Major ConsumerScan clients are already accessing GfK’s databases directly. • Following the abolition of Germany’s Discount Act, promotions and customer loyalty campaigns conducted directly where The second project, S*T*A*R*T*R*A*C*K (System to Analyze consumers make their purchasing decisions are set to become and Report on TRACKing data), relates to the administration increasingly important for marketing. These activities are now and analysis of information on electronic consumer goods, for recorded and presented in ConsumerScan. which the Non-Food Tracking division continuously gathers retail sales data. Developed as a top priority during 2002, the • Micro-geographical localization of ConsumerScan panel system is designed to take over all internal data management households: electronic navigation systems are used to provide functions with effect from 2003. In addition, it will function additional information on households (e.g. to show how many as an interface for worldwide interaction with clients and the minutes it takes them to get to their nearest food retail outlet). cooperating retailers. This information provides users with new opportunities to build up a picture of the attractiveness and sales potential of Launched last year and now in regular operation worldwide, outlets. the Premium Site of the Non-Food Tracking division (www. gfkms.com) is a web-enabled platform which provides • Extensive tests were carried out with ConsumerScan panel clients with direct access to GfK databases. households in Germany headed by non-German nationals and a representative sample of 1,000 households set up which, with effect from 2003, will be reporting on their purchases of fast moving consumer goods. 7. Employees Broken down by business division, at 13.0 per cent the biggest increase in employee numbers came in Non-Food Tracking, the Number of employees – main increases abroad main causes for the rise being the acquisition of the IFR Group At the year-end, the GfK Group employed 4,879 staff, 226 more and additional recruitment in Asia. There was also a relatively than in 2001 (+4.9 per cent). large increase in Consumer Tracking (+9.5 per cent) due to the insourcing of 75 data recording personnel. By contrast, staff Number of employees in Germany and abroad numbers remained virtually unchanged in the Ad Hoc Research and Other divisions. It was only in the Media division that the Number of employees 2001 2001 2002 Change number of employees decreased by 6.5 per cent. (Full-time) Actual Pro forma Actual in % In Germany 1,443 1,443 1,465 + 1.5 Abroad 2,953 3,210 3,414 + 6.4 Staff turnover – a further reduction Total 4,396 4,653 4,879 + 4.9 The rate of staff turnover at GfK companies in Germany, expressed as the rate of notices given by employees to the total As in previous years, the size of the workforce employed by number of employees, was 3.6 per cent in 2002 and therefore GfK companies rose abroad in particular, with a 6.4 per cent significantly lower that the figure of 6.5 per cent in the previous 80 increase, or 204 new employees. This was largely due to the year. acquisition of the IFR Group in France in the Non-Food Tracking division and of Significant GfK in Belgium and Intercampus in Personnel marketing in Germany – Portugal in the Ad Hoc Research division. recruiting and retaining staff A key aspect of personnel marketing activities in 2002 was to Number of employees in Germany and abroad by region present GfK to graduates in a contemporary and professional In % Full-time way, beginning in May 2002 with the new recruitment section on 7% Germany 30 1,465 the GfK website. This was followed by a new corporate image 3% Northern Europe 10 500 brochure targeted at graduates and trainees, a new design for 13 % 30 % Western and job advertisements and a new presentation for fairs and other Southern Europe 37 1,787 events. Central and Eastern Europe 13 634 In addition, marketing efforts were intensified to cover the 37 % 10 % America 3 138 Group’s medium and long-term requirement for qualified Asia and the Pacific 7 355 specialist and management personnel. Total 100 4,879 As well as visiting graduate fairs, GfK acted for the first time as sponsor of Access, a two-day marketing recruitment The largest increase in the number of employees (+17.5 per cent) workshop, directly addressing highly qualified graduates and came in Asia and the Pacific. The causes were the acquisition final year students, who have the potential to apply for junior of Informark in Australia and a higher personnel requirement in GfK consultant posts. Thanks to GfK’s professional approach, China. The next largest regional increases came in Central and interesting presentations and challenging case studies, the Eastern Europe (+9.5 per cent) and Western and Southern Europe Group resulted the most attractive employer represented at (+7.3 per cent). the event in a subsequent poll of well over 100 participants. Number of employees by division Excellence – promoting young high-fliers In % Full-time To promote integration within the Group as well as cross-company 11% 18 % Consumer Tracking 18 863 mobility and flexibility of senior executives, GfK has established Non-Food Tracking 28 1,394 Excellence, its Improvement Program for Management and 36 % 28 % Media 7 345 Ad Hoc Research 36 1,745 Other 11 532 7% Total 100 4,879 Employees MANAGEMENT REPORT Leadership to identify, promote and retain young high-fliers. SEEK – evaluating and encouraging employees The intention is to intensify intercultural exchange within the After extensive development in 2001 and 2002, GfK will GfK Group through strategic projects across countries and introduce a new Staff Evaluation and Encouragement Kit companies. (SEEK) in a pilot scheme in two major subsidiaries during In September 2002, the first Excellence team presented to the 2003. Essentially, SEEK is based on a detailed list of Management Board the GfK Group Corporate Values, which personal success criteria, according to which each employee were developed in less than a year. Since October 2002, the is appraised. GfK has developed this precision instrument to second Excellence team has taken over the task of drafting enable the management to promote employees effectively. proposals for Management Guidelines. Occupational pensions in Germany – Company Survey 2002 – offering alternatives taking employees’ opinions on board As state pensions are set to shrink in the future, occupational In November 2002, after a two-year interval, GfK conducted pension schemes are becoming increasingly important and another survey of employees throughout Germany. The indeed have been promoted by the government since 2002. participation rate was 74 per cent, compared with 73 per 81 GfK encourages its employees to make provision for their old cent for the previous survey in 2000 and the overall results age, giving them the opportunity to pay part of their salary free were satisfying. They will be communicated throughout the of tax and social security into an occupational pension scheme. Group in spring 2003 and will be discussed in workshops. Within certain limits, GfK pays a supplement of 10 per cent on the contributions to the pension fund. Employees have a variety TOPIC – supporting the management of options and combinations to choose from. TOPIC (Top Objectives on Personnel Improvement and In addition, GfK employees have the possibility of opting for a Commitment), an initiative launched in Germany, is aimed private Riester pension on favourable terms through a group life at supporting the management in specifying qualitative insurance policy. management objectives. The initiative was actively and consistently continued in 2002. In conjunction with the Human resources – Company Survey 2002, TOPIC has helped to give important harmonizing personnel marketing at international level pointers to the measures needed to promote and retain employees of GfK companies in Germany. Since 2001, the Personnel Services department has been organizing a human resources meeting attended by personnel managers from GfK companies in various European PEAK – promoting employee development companies. This initiative has two objectives, to develop a To identify and promote qualified and motivated employees, common personnel policy and to produce guidelines on staff GfK Panel Services Consumer Research in Germany has exchanges. Since 2002, Personnel Services has also had an introduced a programme for work with junior marketing and international human resources project group available to research consultants. The Personnel Encouragement and coordinate international activities and launch new initiatives. Assessment Kit (PEAK) is intended to enhance the company’s image as an attractive employer and to target the training Job applications – increase in online candidates of junior marketing and research consultants effectively towards subsequent application in a customer-facing role. An Although GfK advertised fewer posts in 2002 than the previous additional focus is to develop a transparent, performance-based year, it received almost the same number of applications. This promotion policy which will make junior marketing and research is one sign of the success of the marketing measures introduced consultants even more loyal to the company. After its excellent in previous years. Most of the applicants were interested in jobs start at GfK Panel Services Consumer Research, PEAK is now advertised on the GfK website. At the same time, the number of setting an example for other GfK companies. unsolicited applications remained as high as ever. 8. Organization and administration Sub-holdings. The GfK Group has major sub-holdings in the following countries: In addition to its 15 branches in Germany, the GfK Group has 120 subsidiaries and participations in 50 countries worldwide. • Austria for most of the GfK companies in Central and Eastern GfK AG acts both as a holding company and as an operating unit. Europe The Group has its head office in Nuremberg. • Netherlands for all of the Intomart companies Management Board members and their responsibilities. • Switzerland for the companies of the IHA-GfK Group The Chief Executive Officer is responsible for Strategy, Investor Relations, Internal Audit and Public Affairs and Communications, • USA for the GfK companies incorporated there as well as GfK Produkt- und Methodenentwicklung, GfK Data • Singapore for all of the companies of the Non-Food Tracking Services and GfK Business Solutions & Processing. With his division in Asia and the Pacific. appointment on 1 April 2002, the new Chief Financial Officer took over Central Services, Financial Services and Personnel Services, all of which were previously also headed by the CEO. Client base. GfK has a large number of clients worldwide, GfK is organized on a matrix basis, with each of the four including major manufacturers of fast moving branded consumer 82 divisions Consumer Tracking, Non-Food Tracking, Media and goods and durables. No single client accounts for more than Ad Hoc Research under the responsibility of one Management 3 per cent of sales. The 50 biggest clients account for 38.7 per Board member. In addition, the members of the Management cent of sales. Of these top clients, 39 use GfK as a full-service Board are responsible for certain regions. The healthcare company, relying on the services of at least two of GfK’s business services activities are allocated to the Management Board divisions. member responsible for Consumer Tracking. The managing directors report directly to the Management 9. Purchasing Board members responsible for their area. Most of GfK’s purchasing concerns project-related services and Each business division has its own Management Board, to which is carried out locally. The main item is raw data bought in from a number of specialist international teams is assigned. The task other service providers. of the Board members is to develop divisional strategies and to GfK has laid down guidelines for the procurement of goods allocate resources for international projects. and services to ensure quality and cost efficiency and to make Centralized services. GfK AG’s Group Services comprises the optimum use of synergies. Multi-year leases, service and rental following central administrative departments : agreements are regularly checked and re-tendered. The price and quality of the services and materials purchased are constantly • the Financial Services department that includes Group monitored. Accounting and Group Financial Controlling functions as well as the Investor Relations and the Public Affairs and Additional cost savings have been achieved thanks to the Communications departments, all of which have global guidelines and recommendations on the design of brochures responsibility. and presentation and other materials implemented in 2001 and 2002. • the Financial and Operational Accounting functions of the Financial Services department, as well as Central Services Finally, the appointment of a Chief Information Officer for and Personnel Services have authority for Germany only. IT services in 2002 marked an important step towards Outside Germany, these functions are the responsibility of developing worldwide standards for network organization the local GfK companies. and the purchasing and maintenance of hardware and software, which not only satisfy the high security and reliability In 2002, the Group appointed a Chief Information Officer (CIO), requirements for GfK operations but which also ensure optimum whose task is to harmonize the IT Services worldwide and cost efficiency. to develop standards to optimize costs and procedures for the purchasing of hardware and software and for organizing the network environment. The CIO reports to the CEO. Social commitment MANAGEMENT REPORT 10. Environmental protection In certain areas, the GfK Group cooperates with GfK Nürnberg e.V., the main object of which is the promotion of science. The GfK operates a policy of positive action with regard to projects described below all illustrate GfK’s ongoing commitment environmental protection. In Germany, its environment officer, over a long period of time. No reference is made to the Group’s Central Services and IT Services ensure that the GfK companies one-off campaigns in response to particular events, such as the and employees are careful and thrifty in their use of natural disastrous floods in Germany, Austria and the Czech Republic last resources. year. As a practical implementation of this policy, GfK has opted over recent years to switch over from paper documentation to Social commitment – the use of electronic media for as many of its communications active involvement and financial support and administrative processes as possible. These include: Medicine Education Africa in Tanzania. Through its • processing internal administrative procedures for purchasing, English subsidiaries, GfK has committed itself to a medical ordering, travel and personnel management in Germany development project in Tanga, an agricultural region of • archiving divisional, company and project-related resources Tanzania on the border with Kenya. The objective is to set up on the Intranet and maintain a medical infrastructure in the outlying parts 83 of this region, which are far from any doctor or hospital. In • providing clients with online access via portals to the databases each village, one person is provided with basic medical training and the survey results of the Consumer Tracking, Non-Food and a small stock of medicines. Tracking and Media divisions. A similar solution for the Ad Hoc Research division is in the process of implementation. Home for children and young people at Reutersbrunnen- straße, Nuremberg. For the last three years, GfK has been In general, GfK seeks to comply with environmental standards sponsoring the home for children and young people at Reuters- in the procurement, use and disposal of work materials and brunnenstrasse in Nuremberg, one of the oldest establishments office equipment. GfK employees are urged by means of of its kind in Germany. The home provides shelter for around guidelines and recommendations to act in an efficient and 50 children who are separated from their parents for various environmentally responsible manner when procuring and reasons. It also has an emergency flat which can provide disposing of materials. temporary refuge for up to ten children. United Way, Minneapolis, USA. For over twenty years, the 11. Social commitment Group’s American subsidiary, GfK Custom Research, has been Success and a sense of responsibility go hand in hand. As a supporting United Way, an organization which provides various successful market research group and as a company listed in social and charitable services in Minneapolis. A major part of the Prime Segment on the stock exchange, GfK is committed the financial commitment comes from voluntary work by the first of all to its clients, employees and shareholders. Beyond employees of GfK Custom Research. Every employee is given this obligation, however, GfK considers that its success also eight working hours’ leave to devote to a charitable initiative. represents a challenge to take part in initiatives which serve the common good. As Germany’s oldest established market research Academic commitment – training market researchers institute, which has its roots in academic research, and as one of the oldest surviving independent market research companies In 2002, GfK extended for a further three years the contract it in the world, GfK focuses its commitment on the following had concluded with the University of Erlangen-Nuremberg three aspects: years earlier to provide financial and technical support to the University’s Market Information Management department. The • social, cultural and sports projects in the Nuremberg region, funding relates to an interdisciplinary project jointly developed the location in which the company was founded and has its by GfK and the University to prepare business administration head office, aimed in particular at young people in schools and students for the complex requirements of modern market public institutions. research work. • the promotion of academic institutions and professional associations, particularly in relation to training, basic research and further development in the field of market research. Cultural commitment – poster art and children’s theatre 13. Outlook Permanent loan to the Germanisches Nationalmuseum. The economy and the industry – dealing with uncertainty After a preliminary phase of three years, a collection of around The experts are currently very cautious when it comes to 10,000 advertising posters from the period 1890-1960 in the forecasting how the economy will develop in 2003. A great possession of GfK-Nürnberg e.V. and the Nürnberger Akademie deal depends on how matters develop in the Iraq conflict and für Absatzwirtschaft was contributed to the Nuremberg Poster their impact on the political situation in the Middle East. Collection and placed on permanent loan with the Germanisches According to one forecast produced by the Deutsches Institut Nationalmuseum. für Wirtschaftsforschung (DIW), at the beginning of the year, Children’s theater in the Nuremberg region. In 2002, GfK economic growth of 2.5 per cent in real terms is expected acted for the second time as chief sponsor of Panoptikum, a for the USA, with 1.4 per cent forecast for the euro zone and children’s and young people’s theatre festival, at which 20 theatre 0.6 per cent for Germany. companies from seven European countries presented a variety of For the market research sector, growth forecasts for the next productions in Nuremberg over a one-week period. In addition, two years are also on the conservative side. Morgan Stanley GfK provides a Nuremberg-based children’s and young people’s and Crédit Lyonnais predict growth of 3 per cent for 2003 and theatre with ongoing material support. 84 4 per cent for 2004. The situation regarding incoming ad hoc orders in the Media Commitment to sport – Nuremberg city run division is likely to remain difficult, especially for print media, In 2002, GfK for the first time was one of the main sponsors of which will probably continue to be affected by reductions in the Nuremberg city run, which takes place every year through print runs and advertising. This also includes services relating the old town and neighbouring districts. The runners included to continuous advertising success monitoring. However, should more than 120 GfK employees and family members. the economy pick up in the current year after all, it is precisely these services which offer great potential for growth in the short GfK will be continuing its social, economic and cultural commit- term. ment over the coming years. Investment – investing in innovation 12. Major events since the 2002 financial statements In order to retain its leading position as an innovative group, GfK will once again be making major efforts in 2003 to Following the change in the segmentation of equities on the optimize existing processes and technologies and to develop Deutsche Börse in 2003, GfK shares are now listed on the and implement new methods and instruments. To achieve this SDax. With effect from 24 March 2003, the MDax was reduced strategic objective, provision has been made for replacement from 70 to 50 stocks. According to the rankings published by and expansion investment in the order of EUR 24 million. This Deutsche Börse on 31 January 2003, GfK was in 58th place on figure does not include financial investment to complete the the basis of market capitalization and 68th on the basis of share international network, expenses for the establishment and volume traded. On the SDax, which like the MDax includes 50 expansion of panels, the costs of modifying and supplementing stocks, GfK is ranked 7th. software and other outlays, which are charged directly to As many investors in GfK shares are industry rather than index- expenses as “soft facts” at the GfK Group. oriented, GfK does not expect that the change will have any significant adverse impact in the long term. For institutional Financing and liquidity – using the optimization potential investors, the main interest in GfK is as one of the leading companies in the field of market research. The financing potential of the GfK Group has been placed on a broad and solid basis. GfK AG, which is mainly responsible for Group financing, has ample credit lines available. These facilities are called on predominantly for short-term use and on the basis of variable financing. For 2003, measures are in preparation to secure the existing low level of interest over the medium term. Outlook MANAGEMENT REPORT In addition to its credit lines, the GfK Group can draw on EUR Employees – internationalizing human resources strategy 52.5 in cash and short-term securities. Measures are also in In addition to the continuation of the national human resources preparation to centralize these liquid funds in order to further strategy, there will be a further intensification of the efforts improve net interest income. begun in 2002 to extend the use of the existing and jointly Medium-term capital is required almost exclusively for financing developed human resources instruments in the GfK Group of acquisitions, which is matched to the relevant periods. In worldwide. In particular, special measures will be developed to this regard, apart from the credit lines, the Group has abundant optimize the exchange of personnel within the GfK Group. self-financing capacity from its free cash flow and authorized capital of 8.2 million no-par shares. GfK will therefore be able to GfK Group – outperforming sector growth maintain its sound equity ratio in the future. GfK sees good potential for growth within the overall economic situation. Positive pointers in this direction are incoming Research and development – orders and the high proportion of long-term contracts already integrating technological progress concluded. With no change to the scope of consolidation, GfK is During 2003 and 2004, R&D will be focusing on: expecting sales to rise by more than 5 per cent to around EUR 590 million in 2003. In addition to organic growth, GfK also 85 • further developing electronic measurement devices for the intends to generate further growth through acquisitions and the continuous monitoring of consumer behaviour and media expansion of participations. reach As in the previous year, GfK expects EBIT after income from • refining data merging techniques and developing valid participations to rise faster than sales. The Group is expecting to standard services for clients’ new and complex marketing achieve a margin of around 10 per cent. issues For GfK, 2003 has got off to a promising start. As at 1 January • improving data management and data warehousing 2003, overall orders on hand stood at EUR 167.4 million, instruments, particularly in the Ad Hoc Research division. 12.7 per cent up on the same time last year. Taking into account the order book position for the current financial year and sales Purchasing: focusing on IT and communication so far recognized, GfK has already achieved 48 per cent of its sales target of EUR 590 million. The corresponding value for last In the purchasing of materials and services during 2003, GfK year was 47 per cent. will be pursuing the optimization efforts already introduced and expanding them to the whole Group. This applies particularly to IT and communication systems for which national and Business divisions – improving margins international benchmarking processes for hardware and software GfK expects to see the four business divisions Consumer and for maintenance agreements have been introduced. Tracking, Non-Food Tracking, Media and Ad Hoc Research increase both their sales and their operating income. Organization – The following figures relate only to the development of the alignment with the Corporate Governance Code companies consolidated as at 31.12. 2002. In line with the requirements of the German Corporate For Consumer Tracking, GfK is anticipating sales growth Governance Code, plans are in place to optimize all measures of around 6 per cent with a clear rise in the margin to around required to shorten the times for preparation and publication 4 per cent. Measures implemented in 2002 to optimize and of the financial statements of GfK AG and the Group in 2003. standardize data collection and analysis throughout Europe using aTRACKtive will contribute to this development. Corporate structure – strategic coordination The activities of the GfK Group in the Healthcare segment will come under Consumer Tracking from January 2003. As in the past, GfK will continue to pursue its integration This corresponds to the existing allocation of responsibility. strategy. Following the takeover of all of the shares in the The activities of Martin Hamblin GfK HealthCare in the UK companies acquired, these companies are consolidated into and the USA reported under the Ad Hoc Research division larger efficient units and restructured into strategic groups. and the healthcare activities reported under Other, will also be reclassified accordingly. In 2002, these activities posted As in previous years, GfK will continue its practice of initially sales of around EUR 32 million and a rise of around 8 per cent acquiring a stake in a company and then proceeding to gradually is forecast for 2003. A margin of over 10 per cent is assumed. take it over completely. This gradual approach ensures that the previous owners and employees continue to work for the For the Non-Food Tracking division, the company is expecting development of “their company” even within the GfK network. double-digit growth in sales and a rise in the margin over 2002. In addition to expansion into new countries, the launch The fundamental aim of GfK’s acquisition strategy is to build of information services on new product and market segments on its position as a “pure player” in the market research field. comprises the main focus of activity. To achieve this, the service range will be extended to include consultancy services based on GfK’s extensive market research In the Media division, GfK is benefiting from the contracts either knowledge and expertise. extended or won in 2002 to measure TV and radio ratings. On the other hand, the company is assuming that demand in the print sector will remain weak. This limits growth potential in the division. However, sales should rise by more than 3 per cent. GfK is anticipating that the margin will be well over 10 per cent and therefore above the margin for the previous year. 86 Adjusted for the reclassification of the healthcare activities, sales in Ad Hoc Research may be critically affected by economic trends. GfK is therefore expecting only a slight increase in sales. The earnings margin should be higher than in the previous year. The synergies arising from the companies acquired in recent years will play a greater role here. In the Other division, GfK is anticipating a drop in sales to around EUR 10 million and slightly negative income from the internal services sector. The reason here is the planned reclassification of the healthcare activities. Strategy – targeted expansion of the network Thanks to being ranked number 5 among market research institutes worldwide, the GfK Group is very well positioned. The objective of future acquisitions is to make the best possible use of the growth opportunities of the business divisions. In Consumer Tracking, GfK is well placed throughout Europe and will be looking for growth through extending its existing alliances and expanding the healthcare services. In Non-Food Tracking, where GfK is the world leader, the policy of global expansion will once again be pursued. In Media, GfK intends to expand its European network. In Ad Hoc Research, the largest of the divisions, GfK plans to strengthen its presence above all in North America and Europe. Outlook MANAGEMENT REPORT 87 88 FINANCIAL STATEMENTS AND NOTES FOR THE GfK GROUP 90 Consolidated income statement 91 Consolidated balance sheet 92 Consolidated funds statement 93 Changes in consolidated shareholders’ equity 94 Notes to the financial statements for financial year 2002 94 General information 89 94 Methods of consolidation 94 Currency conversion 94 Accounting and valuation methods 98 Scope of consolidation and major acquisitions 100 Notes to the consolidated income statement 103 Notes to the consolidated balance sheet 104 Consolidated fixed assets schedule 110 Proposed appropriation of profits 114 Segment reporting 114 Pro forma statements in accordance with SFAS 141 115 Changes since the previous year 118 Employees 119 Total remuneration and shares of the Management Board and Supervisory Board 120 Supervisory Board 121 Management Board 121 Declaration concerning the Corporate Governance Code 122 Shareholdings of the GfK Group 127 Auditors’ report Consolidated income statement for the period 1 January to 31 December 2002 in EUR’000 2001 2002 Sales 23., page 114 482,132 559,373 Cost of sales – 341,617 – 394,831 Gross income from sales 140,515 164,542 Selling and general administrative expenses – 110,214 – 117,287 Operating income 23., page 114 30,301 47,255 Other income less other expenses 1., page 100 – 14,543 – 3,627 EBIT before income from participations 15,758 43,628 Net income from participations 2., page 100 3,716 6,378 EBIT after income from participations 19,474 50,006 Net interest income 3., page 101 125 – 2,329 Net other financial income 4., page 101 – 15,674 – 2,396 Result from ongoing business activity 3,925 45,281 90 Taxes on income and earnings 5., page 101 – 10,215 – 15,277 Income from the initial application of SFAS 133 136 0 Consolidated total income before minority interests – 6,154 30,004 Minority interests’ share of total income 1,413 – 4,331 Consolidated total income – 4,741 25,673 Earnings per share, undiluted (in EUR) 6., page 103 – 0.18 0.98 The Notes below form an integral part of the consolidated financial statements. Consolidated balance sheet F I N A N C I A L S TAT E M E N T S Consolidated balance sheet as at 31 December 2002 in EUR’000 31.12.2001 31.12.2002 Assets Intangible assets 7., page 103 112,206 163,048 Tangible assets 8., page 106 64,108 69,718 Financial assets 9., page 106 32,268 31,040 Fixed assets page 104 208,582 263,806 Inventories 1,530 1,519 Trade receivables 10., page 107 121,769 119,336 Other accounts receivable and other assets 11., page 107 10,916 16,351 Securities 13., page 108 8,054 7,350 Liquid funds 47,555 45,167 Current assets 189,824 189,723 Deferred taxes page 102 9,075 9,324 Prepaid expenses 14., page 108 5,586 6,701 91 Total assets 413,067 469,554 of which short-term 196,639 197,819 Shareholders’ equity and liabilities Subscribed capital 66,872 66,872 Capital reserve 87,098 87,098 Retained earnings 6,366 27,357 Other comprehensive income page 109 2,791 177 Shareholders’ equity 15., page 108 163,127 181,504 Minority interests 6,535 17,623 Provisions 16., page 110 61,945 69,636 Financial liabilities 17., page 111 53,365 72,882 Trade payables 18., page 112 33,229 36,318 Liabilities on orders in progress 52,384 56,015 Other liabilities 19., page 112 35,843 28,663 Provisions and liabilities 236,766 263,514 Deferred taxes page 102 5,266 6,004 Deferred income 1,373 909 Total liabilities 249,940 288,050 of which short-term 189,023 203,118 Shareholders’ equity and liabilities 413,067 469,554 The Notes below form an integral part of the consolidated financial statements. Consolidated funds statement for the period 1 January to 31 December 2002 in EUR’000 2001 2002 Consolidated total income before minority interests – 6,154 30,004 Write-down/write-up of intangible assets 17,442 8,995 Write-down/write-up of tangible assets 13,687 15,363 Write-down/write-up of financial assets 8,090 491 Change in deferred taxes – 2,786 – 211 Income from companies valued at equity, not affecting payment 1,980 – 177 Profits/losses from the disposal of tangible assets – 1,494 618 Net interest income affecting payment – 29 2,269 Increase/decrease in provisions 5,672 2,427 Other revenue/expenses not affecting payment 10,109 577 Increase/decrease in inventories, trade receivables and other assets, not attributable to investment or financing activity 17,106 19,622 Increase/decrease in liabilities and other liabilities, not attributable to investment or financing activity 12,335 – 10,674 a) Cash flow from ongoing business activity 75,958 69,304 Cash outflows for investment in intangible assets – 20,881 – 9,522 92 Cash outflows for investment in tangible assets – 11,960 – 19,051 Cash outflows from the acquisition of consolidated companies and other business units – 51,526 – 44,088 Cash outflows for investment in other financial assets – 23,902 – 3,913 Cash inflows from disposals of intangible assets 994 83 Cash inflows from disposals of tangible assets 398 1,601 Cash inflows from the disposal of consolidated companies and other business units 244 0 Cash inflows from disposals of other financial assets 2,442 1,698 b) Cash flow from investment activity – 104,191 – 73,192 Cash outflows to company owners – 3,918 – 4,441 Cash inflows from/outflows to minority interests – 698 – 1,703 Net interest income 29 – 2,269 Cash inflows from the raising of loans 28,628 34,692 Cash outflows from the repayment of loans – 7,204 – 23,346 c) Cash flow from financing activity 16,837 2,933 Changes in financial resources affecting payment (total of a), b) and c)) – 11,396 – 955 Changes in financial resources owing to exchange gains/losses, scope of consolidation and valuation 184 – 1,433 Financial resources at the start of the period 58,767 47,555 Financial resources at the end of the period 47,555 45,167 The Notes below form an integral part of the consolidated financial statements. Changes in consolidated shareholders’ equity F I N A N C I A L S TAT E M E N T S Changes in consolidated shareholders’ equity Other Comprehensive Income for the period 1 January 2001 to 31 December 2002 in EUR’000 Difference Market Difference No. of shares Subscribed Capital Retained from currency valuation of from pension (in thousands) capital reserve earnings conversion securities valuation Total As at 1 January 2001 26,122 66,872 87,098 14,497 2,084 – 2,785 0 167,766 Dividend – 3,918 – 3,918 Consolidated total income after tax – 4,741 – 4.741 Other changes 528 528 Other comprehensive income 730 2,796 – 34 3,492 As at 31 December 2001 26,122 66,872 87,098 6,366 2,814 11 – 34 163,127 Dividend – 4,441 – 4,441 Consolidated total income after tax 25,673 25,673 Other changes – 241 – 241 Other comprehensive income – 2,623 – 25 34 – 2,614 93 As at 31 December 2002 26,122 66,872 87,098 27,357 191 – 14 0 181,504 The Notes below form an integral part of the consolidated financial statements. N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 2 0 0 2 General information The consolidation on transition from equity valuation to full consolidation takes place with no impact on income but is done The consolidated financial statements of GfK Aktiengesellschaft separately for every part-acquisition. The acquisition costs (GfK AG) include the company itself and all consolidated included in capital consolidation comprise the amortized equity subsidiaries (the GfK Group). The statements have been prepared book value and the acquisition costs for the majority acquisition. in accordance with the United States Generally Accepted Accounting Principles (US GAAP) and all figures are given in Shares in the equity capital and in the subsidiaries' results EUR thousand, unless specified otherwise. The income statement attributable to minority interests are reported as a separate item has been prepared using the cost of sales accounting format. in the annual financial statements. From financial year 2002 onwards, the GfK Group will no longer prepare its consolidated financial statements in compliance Currency conversion with the accounting principles of the German Commercial Code The balance sheets of foreign subsidiaries which were not (HGB). The US GAAP consolidated financial statements are prepared in euros are translated into euros at the middle rates on supplemented by a management report and other required the balance sheet date in line with the concept of the functional information, so that the GfK Group is exempt from the duty to currency. The annual average euro exchange rate for these prepare consolidated financial statements in accordance with currencies, determined as the mean of all monthly closing rates, HGB pursuant to § 292 a HGB. is applied to the income statements of these subsidiaries. The published consolidated financial statements of the GfK Differences arising between the conversion of assets and liabilities 94 Group for financial year 2001 had been prepared in accordance at the rate on the reporting date and their conversion at the with the German Commercial Code (HGB). In order to allow rate on the previous reporting date, and differences arising from comparison of the US GAAP figures for financial year 2002, the conversion of the profit for the year in the balance sheet (rate previous year's figures prepared in accordance with US GAAP on reporting date) and income statement (average rate) are are presented with them. recorded in equity with no impact on income. Differences in The annual financial statements of the parent company, GfK AG, exchange rates arising from capital consolidation are reported have been prepared in accordance with HGB and are deposited in equity within other comprehensive income. at the Commercial Register at the district court of Nuremberg All monetary assets and the short-term non-monetary assets under HR B 9398. and liabilities of subsidiaries in countries with high inflation are converted at the rate on the reporting date, whilst long-term Methods of consolidation assets and liabilities along with the equity capital are translated at historic prices. Any resultant exchange rate differences are The annual financial statements of GfK AG and all material reported and recognized as income on the income statement. subsidiaries over which control is exercised directly or indirectly are included in the consolidated financial statements of GfK AG. The exchange rates of the main currencies used as a basis for Companies in which the GfK Group has a participation of not currency translation in the GfK Group's consolidated financial more than 50%, but over which decisive influence can be statements are as follows: exercised, are generally accounted for at equity as associated companies. All other companies in the GfK Group are reported Main currencies Euro mean rate Euro average rate at acquisition cost. on balance sheet date during reporting period Capital consolidation is carried out in accordance with the Country, unit of currency 31.12.2001 31.12.2002 2001 2002 Statement of Financial Accounting Standards (SFAS) 141 by the purchase accounting method, whereby the acquisition costs of USA, USD 1 1.13 0.96 1.12 1.05 the participation are charged against the parent company’s pro UK, GBP 1 1.64 1.54 1.62 1.59 rata share in the newly valued equity capital of the subsidiary Japan, JPY 100 0.86 0.81 0.92 0.85 at the time of purchase. Any difference (positive goodwill) arising Switzerland, CHF 100 67.55 68.84 66.30 68.21 in the balance sheet is reported under fixed assets as goodwill. All transactions and balances between the companies of the GfK Group which are included in the consolidated financial statements are eliminated when preparing the consolidated Accounting and valuation methods financial statements. Differences arising from debt consolidation Recognition of sales are treated as income. Intercompany results and asset move- ments are eliminated with impact on the income statement if The method of recognizing sales depends on the nature of they are significant. the underlying transaction. For business involving panels, the GfK Group recognizes its sales according to the progress pro Associated companies that are included at equity (one-line rata temporis of the project (proportional performance method). consolidation) are generally included for the first time at the Business in the Ad Hoc division is valued by the percentage of time of acquisition. The initial valuation takes place similarly to completion method. full consolidation. A difference on the assets side arising from offsetting the book value of the participation against the pro In the case of the proportional performance method, the sales rata equity capital at initial valuation is added to the equity book for a project are distributed evenly over its duration. Each month value. during the term of a contract the same sales are recognized in Notes: accounting and valuation methods F I N A N C I A L S TAT E M E N T S terms of amount. Where over 50% of the costs occur in the Intangible assets following month, the sales are recognized with one month's Software delay. As a rule, software developed by companies in the GfK Group When applying the percentage of completion method, the sales is used internally for analyzing and preparing market research are recognized in accordance with the actual progress of the data. In some cases, it is destined for external users and is project. Progress on the project is determined as the ratio of programmed particularly to meet those users' requirements. the actual costs incurred to the costs expected overall for the project. The estimate of total cost is continuously checked Precisely defined portions of the internal costs of software during the life of the project. Changes in the estimate of total development are capitalized under fixed assets. Amortization cost flow into the calculation of realizable sales at the point in commences on completion of the software. time at which they can be anticipated. In addition to proprietary software, the item software also The costs to be incorporated into this calculation comprise includes software acquired for internal use. all direct material and personnel expenses as well as pro rata indirect costs. Provisions are formed for anticipated losses on Goodwill orders in progress when they can be anticipated. Goodwill arising from capital consolidation of subsidiaries and In all other business transactions the completed contract method that transferred from subsidiaries' financial statements into the is used, according to which sales are only recognized once the consolidated financial statements is reported by the GfK Group work has been completed and invoicing has taken place. 95 under intangible assets. Goodwill arising from first-time consolidations prior to 1 July Earnings per share 2001 and that transferred from company financial statements has The earnings per share (EPS) reported in the consolidated been amortized over its useful life until 31 December 2001. income statement show the proportion of consolidated total According to SFAS 142, such goodwill is no longer subject to income which theoretically relates to each share issued. regular amortization after 31 December 2001. Goodwill arising Dilution effects arising from the exercise or issue of share after 1 July 2001 is also not subject to scheduled amortization. options are not taken into account. The GfK Group checks the recoverbility of its goodwill once a There is no dilution effect arising from the stock options issued year and when friggering events or changed circumstances arise as at 31 December 2002. by making a management accounting valuation which is calculat- ed as the mean of several valuation procedures. Stock options for employees and management staff of the GfK Group Other intangible assets The GfK Group applies APB (Accounting Principles Board) In addition to other intangible assets this item includes payments Opinion No. 25 and associated interpretations to depict the on account for intangible assets. Apart from the payments on existing Stock Option Plan in the consolidated financial account, the other intangible assets are subject to scheduled statements. According to APB 25, expenditure for employee straight-line amortization. The amortization period is governed stock options with no intrinsic value on the balance sheet date by the contract term or the useful life, applying the shorter of the cannot be recognized. two periods. The following table shows the effects on the consolidated total income and the EPS which would have resulted had SFAS 123 Tangible assets ”Accounting for Stock-Based Compensation“ been applied to all Tangible assets are valued at acquisition or manufacturing costs, issued options. less cumulative depreciation. Cumulative depreciation includes scheduled straight-line depreciation up to the balance sheet date 2001 2002 and any extraordinary depreciation recorded. The depreciation Consolidated total income – 4,741 25,673 period corresponds to the useful life. Payments on account and assets in the course of construction are not subject to regular Plus: Personnel expenses (after tax) in connection with stock-based compensation on application depreciation. of APB 25 0 0 Less: Total personnel expenses (after tax) in connection with stock-based compensation on application of the accounting method based on fair values (SFAS 123) – 4,535 – 4,584 Pro forma consolidated total income – 9,276 21,089 Earnings per share in EUR – 0.18 0.98 Pro forma earnings per share in EUR – 0.36 0.81 Earnings per share (diluted) in EUR – 0.18 0.98 Pro forma earnings per share (diluted) in EUR – 0.36 0.,81 The GfK Group normally applies the following useful life Liquid funds periods: The liquid funds contain cash in hand and at banks as well as liquid investments with a remaining term of less than three Asset Useful life in years months. Software and other intangible assets 3 to 10 Deferred tax assets Administrative buildings 50 The GfK Group applies SFAS 109 "Accounting for Income Taxes". IT equipment 3 to 5 According to the asset-and-liability method described in SFAS Cars and other vehicles 5 109, the respective local tax balance sheet is compared with the Office equipment 3 to 5 US GAAP balance sheet and the differences ascertained. Future tax effects arising from the differences are entered in the form of Office furniture 10 to 13 deferred tax assets or liabilities. The effects on deferred taxes of changes in tax legislation are recognized as income from the date on which the tax legislation is issued. In cases involving a capital lease, the leased asset is capitalized and a corresponding lease commitment is carried as a liability. Deferred tax assets accordingly consist of theoretical tax balances The period of depreciation is equivalent to the shorter of the resulting from comparing the US GAAP balance sheet against contract period and useful life. the local tax balance sheet, and from the theoretical tax advantage 96 arising from tax loss carryforwards. If it is unlikely that these theoretical tax balances can be realized, valuation allowances are Available-for-sale securities applied. Available-for-sale securities are valued at fair value on the balance sheet date. Each security is considered individually. Shareholders’ equity – other comprehensive income These are securities which are not treated as part of the trading securities. The GfK Group only shows trading securities under Other comprehensive income contains changes in the current assets; all other securities are reported under fixed Group's equity which have no impact on income and do not assets as available-for-sale securities. comprise contributions by shareholders or dividends paid to shareholders. They are exchange rate differences arising from In the case of lasting impairment of value, available-for-sale capital consolidation and equity valuation, unrealized profits securities are written down and charged to income under and losses from available-for-sale securities and components “net other financial income” on the income statement. In the of pension obligations which are not yet reported as pension case of a temporary fall or rise in value, the new valuation of expenses. these securities is reported as equity in other comprehensive income with no impact on income. Provisions Inventories In principle, provisions are allocated when there is an obligation to a third party which is probable and the level can be estimated Inventories are stated at acquisition or manufacturing costs, or reliably. If the liability contains an interest portion, the provision fair value if lower. The manufacturing costs are entered at full will be stated at the present value. cost. Provisions for pensions according to SFAS 87 are valued in accordance with the projected unit credit method, in which Trade receivables future compensation increases are taken into account. Trade receivables include both invoiced and non-invoiced receivables. They are stated at nominal value or, in the case Financial liabilities of specific risks, at the lower attributable value. Non-invoiced receivables can arise in the valuation of sales where the sales Financial liabilities contain liabilities of a financial nature, to be recognized for a contract exceed the receivables already particularly loans from banks and other lenders, liabilities from invoiced for it. capital leases and long-term liabilities from the acquisition of companies or business units. They are stated at the repayment amounts. Securities held as current assets Securities held as current assets represent the trading securities destined for short-term sale. They are valued at fair value on the balance sheet date. Unrealized profits and losses are taken to income and reported under net other financial income on the income statement. Notes: accounting and valuation methods F I N A N C I A L S TAT E M E N T S Liabilities on orders in progress The book value of the intangible assets was EUR 112,206 thousand as at 31 December 2001, including goodwill of Liabilities on orders in progress comprise payments on account EUR 84,184 thousand. The scheduled amortization of goodwill and accrued amounts from recognition of sales. Sales are amounted to EUR 10,392 thousand during 2001. accrued within this item which have arisen from contractually agreed invoices for prepayments or payments in advance, In August 2001, SFAS 144 “Accounting for the Impairment or but cannot yet be recognized as sales according to the above Disposal of Long-lived Assets"” was published. SFAS 144 described sales recognition method. replaces SFAS 121 “Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of”, and the accounting rules of APB Opinion No. 30 “Reporting the Result Derivative financial instruments of Operations - Discontinued Events and Extraordinary Items”. Derivatives are reported as assets or liabilities in the balance SFAS 144 also corrects Accounting Research Bulletin (ARB) 51, sheet (SFAS 133) and carried at fair value. Changes in the “Consolidated Financial Statements”, whereby the exceptional fair value of derivative financial instruments are recognized in rule that a subsidiary over which control will probably only income on an accrual basis. be exerted temporarily, does not have to be consolidated is withdrawn. SFAS 144 upholds many of the fundamental rules of SFAS 121 concerning realization and valuation of extraordinary New developments in accounting depreciation/amortization on fixed assets. In July 2001, the Financial Accounting Standards Board SFAS 144 must be applied to financial years which started after (FASB) published SFAS 141 “Business Combinations” and 97 15 December 2001. SFAS 142 “Goodwill and Other Intangible Assets”. These standards brought about a fundamental change in the In April 2002, the FASB published SFAS 145 “Rescission of FASB accounting rules for company acquisitions and mergers in the Statements 4, 44 and 64, Amendment of FASB Statement No. 13, consolidated financial statements, and the treatment of goodwill and Technical Corrections”. This requires for example that profits and intangible assets. SFAS 141 prescribes the purchase and losses arising from the extinguishment of debt may only be method for all company acquisitions after 30 June 2001. If during recognized as extraordinary items if they meet the criteria in APB the course of acquiring a company intangible assets are also 30 (in other words, unusual nature and infrequent occurrence). acquired, they must either be capitalized separately or included If only one of the two criteria is met, then profits and losses must as goodwill. The criteria for the treatment of acquired intangible be shown in the result from ongoing business activity. assets are defined in SFAS 141. SFAS 145 has to be applied in financial years that commence SFAS 142 prescribes that goodwill and intangible assets with after 15 May 2002. Its application will not have any significant an indefinite useful life may no longer be subject to scheduled effects on the consolidated financial statements of the GfK Group. amortization. Their value must be checked each year as part of In July 2002, the FASB published SFAS 146 “Accounting for the impairment test. If there are signs of a diminution in value, Costs Associated with Exit or Disposal Activities”. According an additional unscheduled impairment test must be carried out. to SFAS 146, costs connected with exits or disposals should Intangible assets with a limited useful life have to be amortized be recognized in the period in which they were incurred. A on a scheduled basis according to SFAS 142 until they reach reasonable estimate of their fair value must be possible. SFAS the expected residual value. In addition, they must also be 146 is to be applied to exits or disposals that take place after tested for impairment of value. This is set out in SFAS 121 and 31 December 2002. SFAS 144. In November 2002, EITF 00-21 “Revenue Arrangements with The provisions for amortization of goodwill under SFAS 142 Multiple Deliverables” was passed by the Emerging Issues should be applied directly to goodwill and intangible assets Task Force. EITF 00-21 deals with accounting for sales trans- acquired since 30 June 2001. Goodwill and intangible assets actions in which the vendor has to provide a number of acquired prior to this date require SFAS 142 to be applied for deliverables. It defines the conditions for dividing up a sales the first time from 1 January 2002 onwards. transaction with several deliverables into separate accounting At the time of the first application, an impairment test for units and prescribes how this should be done. EITF 00-21 goodwill has to be carried out. If this results in an amortization has to be applied to financial statements for reporting periods requirement, such amortization must be stated in the income starting from 1 July 2003 onwards. statement as a cumulative effect of the change in accounting rules. During November 2002, the FASB published FIN 45 “Guarantor's Accounting and Disclosure Requirements for Fully consolidated subsidiaries (No.) Guarantees, Including Indirect Guarantees of Indebtedness of 31.12. 2001 Additions Disposals 31.12.2002 Others – an interpretation of FASB Statements No. 5, 57 and Germany 9 2 1 10 107 and Rescission of FASB Interpretation No. 34”. It defines Abroad 75 14 8 81 the disclosure requirements of the guarantor in respect of Total 84 16 9 91 the obligations arising from the guarantees provided. FIN 45 requires liabilities arising from the furnishing of guarantees to be carried as liabilities. FIN 45 should be applied to reporting periods that end after 15 December 2002, but only to guarantees The additions include the companies reported as associated which were furnished or modified after 31 December 2002. companies in the consolidated financial statements in accordance with US GAAP as at 31 December 2001: EMER GfK, S.L., Valencia, In December 2002, the FASB adopted SFAS 148 “Accounting Spain (“E+G Spain”), G.E. Marketing Research, S.A., Valencia, for Stock-Based Compensation – Transition and Disclosure – an Spain (”G+E Spain”), GfK PORTUGAL – Marketing Services, amendment of FASB Statement No. 123”. Supplementing SFAS LDA, Lisbon, Portugal (“GfK M.S. Portugal”), and METRIS – 123 “Accounting for Stock-Based Compensation”, it provides MÉTODOS DE RECOLHA E INVESTIGAÇÃO SOCIAL, LDA, further transitional rules for the voluntary first-time application Lisbon, Portugal (“Metris Portugal”). By virtue of contract of accounting for stock-based compensation in line with fair changes, from 1 January 2002 onwards GfK AG has commercial values. The accounting method and resultant impact on income control of these companies. During the reporting year the GfK 98 should be described in detail and highlighted in the Notes to the Group acquired additional shares in INTERCAMPUS - RECOLHA, financial statements according to SFAS 148. The GfK Group TRATAMENTO E DISTRIBUIÇÃO DE INFORMAÇÃO, LDA, is applying APB 25 for accounting for stock-based compensation Lisbon, Portugal (“Intercampus Portugal”), so that the company in the consolidated financial statements. There are no plans yet is now consolidated. for a transition to the provisions of SFAS 123. The joint venture Infratest + GfK Gesundheitsforschung GmbH In January 2003, the FASB published FIN 46 “Consolidation & Co., Berlin (“IGG KG”) previously included as an associated of Variable Interest Entities – an interpretation of ARB No. 51”. company has now been split and as at 1 July 2002 has been It presents the consolidation of companies in which there is merged pro rata into the parent companies. In connection with a controlling financial interest owing to voting rights or variable this split, the GfK Group received a majority interest of 80 % shares. In such cases these Variable Interest Entities have to be in GPI Kommunikationsforschung Gesellschaft für Pharma- consolidated with the primary beneficiary. Informationssysteme mbH, Nuremberg (“GPI KoFo D”). These The GfK Group has no participating interests in Variable Interest activities are reported in the division Other. Entities. Through the acquisition of a majority stake of 51.4 % in Institut The effects of SFAS 146 and SFAS 148, EITF 00-21, FIN 45 and Français de Recherche S.A., Viroflay, France, the following FIN 46 on future consolidated financial statements of the GfK IFR Group subsidiaries as well as the parent company became Group are currently being considered. consolidated companies of the GfK Group as at 1 July 2002: • IFR Europe Ltd., London, UK Estimates • IFR France S.A., Viroflay, France To some extent estimates and assumptions cannot be avoided in • IFR Italia S.r.L., Milan, Italy the consolidated financial statements. They may affect assets and liabilities as well as contingencies on the balance sheet date as • IFR Marketing España S.L., Madrid, Spain well as the income and expenses for the financial year. The actual The IFR Group operates in the Non-Food Tracking segment. amounts concerned may deviate from such estimates. As at 1 January 2002, the GfK Group acquired a 51 % stake in GfK MACON AG, Waghäusel, Germany (“GfK Macon D”) which Scope of consolidation and major acquisitions operates in the Ad Hoc Research segment. Fully consolidated companies The Group also acquired a majority holding in the Ad Hoc company Strateji GfK Research Services A.S. in Istanbul, As at 31 December 2002, the scope of consolidation in Turkey. accordance with US GAAP includes ten (2001: nine) German and 81 (2001: 75) foreign subsidiaries in addition to the parent In Brussels, Belgium, the Group established Intomart GfK company. Belgium N.V., which acts as a holding company for the majority stake acquired on 1 July 2002 in Significant bvba, Heverlee, The following table shows the changes in fully consolidated Belgium (“Significant Belgium”) which operates in the Ad Hoc subsidiaries between 31 December 2001 and 31 December 2002: Research segment. Notes: scope of consolidation F I N A N C I A L S TAT E M E N T S In the Non-Food Tracking segment, the GfK Group acquired a The joint ventures GfK Ad Hoc Research WORLDWIDE, majority holding in Informark Pty. Ltd., Braddon, Australia as Brussels, Belgium, and GfK Stratégie et développement GIE, of 1 January 2002. Rueil-Malmaison, France, previously not reported as Group companies, were reclassified as affiliated companies because the The purchase price of the acquisitions above was EUR 41,708 GfK Group has a majority participation in these joint ventures. thousand in total. This produced goodwill of EUR 43,118 thousand. This relates to the Non-Food Tracking (EUR 21,743 GfK Testmarktforschung GmbH i.L., Nuremberg, Germany, thousand), Ad Hoc Research (EUR 4,806 thousand) and Other Exmarket + GfK Praha, spol. s.r.o., Prague, Czech Republic, (EUR 16,569 thousand) segments. Sensory Research Laboratories Ltd., London, UK, MH Gamma Consulting Limited, London, UK and MHIG Limited, London, UK, GfK Marketing Services Asia Ltd., Tokyo, Japan was liquidated. which were not included in 2001 due to minor significance, were Its business operations were continued by GfK Marketing liquidated during the reporting period. Services Ltd., Hong Kong, China. The majority holding in I+G Infratest & GfK Gesundheitsforschung GfK/VCIOM/Institute for Media Research ZAO, Moscow, Russia (Suisse) GmbH, Basle, Switzerland acquired in connection was liquidated. Its business operations were carried on by with the splitting and merging of IGG KG, is not included in the GfK-RUS Gesellschaft mbH of Moscow, Russia. consolidated financial statements because the company is to be SELECTA – S.r.L., Rome, Italy and GfK-Recom S.r.L., Milan, Italy liquidated in the near future. were merged with GfK-ASM S.r.L., Rome, which was renamed GfK CONSUMER AND BUSINESS INFORMATION ITALY S.p.A. Associated companies 99 (”GfK CBI Italy”) and moved its headquarters to Milan. The following table shows the changes in associated companies GfK InfoScan Sverige AB, Lund, Sweden (“InfoScan Sweden”), between 31 December 2001 and 31 December 2002: GfK Belgium S.A., Brussels, Belgium (“GfK Belgium”), dragon eye Ltd., Hergiswil, Switzerland (“dragon eye Switzerland”), MMXI Switzerland GmbH, Hergiswil, Switzerland (“MMXI Associated companies (No.) Switzerland”) and PRISMA Projekt-Beratung GmbH, Hamburg 31.12. 2001 Additions Disposals 31.12. 2002 (“Prisma Projekt D”) were deconsolidated on 1 January 2002. These companies are of minor importance for the consolidated Germany 4 1 2 3 financial statements. Abroad 24 8 8 24 Total 28 9 10 27 Companies of minor importance The GfK Group did not include 31 (2001: 21) companies in the The consolidated financial accounts as at 31 December 2002 consolidated financial statements during the reporting year report participations in 27 (2001: 28) associated companies. because they were only of minor significance for the net assets, E+G Spain and G+E Spain were classified as associated financial position and results of operations of the Group. companies as at 31 December 2001 and have been included As part of the acquisition of the IFR Group in France, the since 1 January 2002 in the consolidated financial statements following companies were added to the GfK Group and are of as fully consolidated subsidiaries. minor importance: During the reporting period the GfK Group acquired participations • CMI Field SARL, Viroflay, France in m2A S.A., Saint Aubin, France and Indicorp Participações S.A., São Paolo, Brazil. • IFR Monitoring Deutschland GmbH, Düsseldorf European Flash Surveys EEIG, Brussels, Belgium, and • IFR Nederland B.V., Amsterdam, Netherlands GfK-Media Research Middle East AG, Hergiswil, Switzerland, • IFR Polska Sp. z o.o., Warsaw, Poland were established. • IFR U.K. Ltd., London, UK The joint ventures ConsumerSCOPE International GIE, Nuremberg, Germany, Europanel Raw Database GIE, Brussels, In connection with the splitting of IGG KG and its subsequent Belgium, Common Technology Centre EEIG, London, UK, merging into GfK AG, the GfK Group received participations Media Focus (ARGE), Hergiswil, Switzerland, and V.O.F. Project- in the companies I+G Gesundheits- und Pharmaforschung Ver- bureau Politiemonitor, Hilversum, Netherlands, previously not waltungs-GmbH, Nuremberg, and I+G Infratest Medical Research treated as Group companies, were reclassified as associated Inc., Rhode Island, USA. These companies are not operational companies in line with participation quota. and therefore are of minor significance for the GfK Group. The participation in Sensory Solutions Pty. Ltd., Castle Hill, Through the inclusion of the company Metris Portugal, the GfK Australia, Digital Druck AG, Stans, Switzerland, MMXI Europe Group obtained a majority holding in CATICALL – RECOLHA DE y B.V., Amsterdam, Netherlands, and Cesk´ Index s.r.o., Prague, INFORMAÇÃO ASSISTIDA POR COMPUTADOR, LDA, Lisbon, Czech Republic, were sold. Portugal, which is not consolidated. The above companies InfoScan Sweden, GfK Belgium, dragon eye Switzerland, MMXI Switzerland and Prisma Projekt D were deconsolidated. The holdings in IGG KG and Infratest + GfK Gesundheitsforschung Miscellaneous income essentially contains income from earlier Verwaltungs-GmbH, Berlin, were absorbed in the course of the periods (EUR 913 thousand) and income from rents and leases above merger into GfK AG. (EUR 495 thousand). The participation quota in Centrum voor Marketing Analyses Miscellaneous expenses essentially comprise amortization on B.V., Amsterdam, Netherlands (previously Centrum Partners other intangible assets (EUR 2,572 thousand). B.V.) was reduced. The company is now included under other participations in the financial statements. 2. Net income from participations The company Media Monitoring Switzerland AG, Berne, Net income from participations is as follows: Switzerland, was liquidated. 2001 2002 Other participations Income from participations in affiliated During the reporting year, GfK acquired a 4% holding in companies 210 55 Chart-Track Limited, London, UK. Income from participations in associated companies 5,174 2,846 Following the reduction of the holding in Centrum voor Marketing Analyses B.V., Amsterdam, Netherlands, the company, previously Profits from the disposal of participations in associated companies 0 3,606 reported as an associated company, was reclassified and included under other participations. Income from other participations 371 8 100 Income from participations 5,755 6,515 In the course of acquiring a majority stake in Intercampus Portugal, the GfK Group also obtained a holding in 10Nex Investigação – Estudos de Mercado LDA, Lisbon, Portugal, Expenses from loss transfer from affiliated companies 0 78 which is reported under other participations. Depreciation on participations in affiliated and The joint venture EUROPEAN OPINION RESEARCH GROUP associated companies 2,037 35 EEIG, Brussels, Belgium is now reported under other Losses from the disposal of participations in affiliated participations. and associated companies 2 24 As a result, the number of other participations rose by four Expenses on participations 2,039 137 compared with the end of the previous year to a total of nine. Net income from participations 3,716 6,378 Notes to the consolidated income statement The pro rata income of the I+G Group Germany was reported in 1. Other income less other expenses 2001 within income from participations in associated companies. As at 1 July 2002, the I+G Group was partially merged with GfK, Other income and expenses break down as follows: and results are now reported under operating income on the income statement. In connection with the splitting of IGG KG, 2001 2002 a book profit of EUR 3,001 thousand arose which is included under profits from the disposal of participations in associated Exchange gains 3,102 2,166 companies. Income from deconsolidation 224 197 Profits from the disposal of tangible and intangible assets 111 188 Miscellaneous 1,631 2,473 Other income 5,068 5,024 Exchange losses 3,164 4,259 Expenses from deconsolidation 0 441 Losses from the disposal of tangible and intangible assets 81 208 Amortization of goodwill 9,940 0 Miscellaneous 6,426 3,743 Other expenses 19,611 8,651 Other income less other expenses – 14,543 – 3,627 Notes: notes to the consolidated income statement F I N A N C I A L S TAT E M E N T S 3. Net interest income The loss from the disposal of loans to associated companies amounting to EUR 1,194 thousand relates to the waiving of a Net interest income is as follows: loan in respect of MMXI Europe NL in connection with the sale of the participation. 2001 2002 During 2001, realized loss from the reclassification of securities Interest income from bank balances 1,341 867 and losses from securities held as current assets included the Interest income from receivables 692 500 valuation allowance on a participation in Jupiter Media Metrix Interest income from other loans 316 393 Inc., USA amounting to EUR 6,907 thousand. The write-downs on Interest income from available-for-sale securities 70 15 loans to associated companies related to loans to the bwv Group, Switzerland. Interest income from affiliated companies 43 28 Interest income from associated companies 295 373 5. Taxes on income and earnings Interest income 2,757 2,176 The result before income taxes is divided between Germany and Interest and similar expenses due to banks 1,255 2,885 abroad as follows: Interest and similar expenses due to others 1,363 1,591 Interest and similar expenses due to affiliated 2001 2002 companies 0 29 Germany 4,649 32,444 101 Interest and similar expenses due to associated Abroad – 724 12,837 companies 14 0 Result from ongoing business activity 3,925 45,281 Interest expenses 2,632 4,505 Net interest income 125 – 2,329 The Group's taxes on income are as follows: 4. Net other financial income 2001 2002 Net other financial income breaks down as follows: Current taxes Germany 6,559 4,982 2001 2002 Abroad 6,968 10,505 Profits from securities 13,527 15,487 held as current assets 359 111 Deferred taxes Profits from available-for-sale securities 210 12 Germany –2,762 6,828 Profits from disposal of loans to affiliated companies 0 3 Abroad – 550 – 7,038 Realized profit from the reclassification of – 3,312 – 210 securities 6 14 Taxes on income and earnings 10,215 15,277 Write-ups on securities 5 2 Other financial income 580 142 The tax advantage from the utilization of loss carryforwards during financial year 2002 amounts to EUR 1,079 thousand Losses from securities held as current assets 5,722 1,331 (2001: EUR 501 thousand). Owing to a new estimate of the amount of deferred tax assets to be realized, the valuation Losses from available-for-sale securities 23 13 allowance for deferred tax assets existing at the start of the Realized loss from the reclassification of year was reduced, which led to a tax advantage in the amount securities 4,585 0 of EUR 317 thousand (2001: EUR 448 thousand). National Losses from disposal of loans to associated investment tax credits reduce income tax by EUR 122 thousand companies 0 1,194 (2001: EUR 0). Adjustments in deferred taxes because of changes Write-downs on loans to affiliated in the underlying tax rates reduce tax expenses by a further companies 31 0 EUR 519 thousand (2001: EUR 0). Write-downs on loans to associated companies 5,893 0 As at 31 December 2002, to calculate the deferred taxes for the Other financial expenses 16,254 2,538 German companies with registered offices in Nuremberg a tax rate of 41.118 % is used for deferred taxes which will probably Net other financial income – 15,674 – 2,396 be reversed in 2003, and a tax rate of 39.824 % is used for the other deferred taxes. During 2001, a uniform tax rate of 39.824 % was used to determine the deferred taxes. These tax rates comprise corporation tax of 26.5% for the The deferred taxes result from the following balance sheet items: assessment period 2003 and 25% for all other assessment periods plus the solidarity surcharge of 5.5% (2001: 5.5%) on 31.12.2001 31.12.2002 the corporation tax debt paid as well as the effective trade tax rate of 13.160% (2001: 13.449%). The flood victim solidarity Intangible assets 3,219 3,596 law ("Flutopfersolidaritätsgesetz") passed in September 2002 Tangible assets 486 613 caused a one-off rise in the corporation tax rate from 25% to Financial assets 2,804 210 26.5% for financial year 2003. Inventories 7,546 14,551 The deferred taxes of the other German companies and the Accounts receivable and other assets 570 465 foreign companies are calculated at the respective specific tax Prepaid expenses 5 6 rates. Provisions 2,371 3,803 The following table contains a reconciliation of the anticipated Liabilities 10,744 10,031 income tax expense to the income tax expense stated in financial Deferred income 181 122 year 2002. To calculate the anticipated tax expenses, the total tax Loss carryforwards and tax credits 6,684 6,232 rate valid during the financial year is multiplied by the pre-tax result. Deferred tax assets before valuation allowance 34,610 39,629 Valuation allowance – 1,916 – 1,691 Deferred tax assets 32,694 37,938 102 2002 Total tax rate 39.824 % Intangible assets – 1,877 – 3,774 Expected income tax 18,033 Tangible assets – 9,580 – 9,069 Increase/reduction in income tax debt resulting from differences in tax rates – 2,631 Financial assets – 2,547 – 416 income from participations valued at equity, Inventories – 111 – 110 not eligible for tax – 451 Accounts receivable and other assets – 10,737 – 17,082 adjustment of deferred taxes owing to changes Prepaid expenses – 82 – 78 in tax rate – 519 Special reserve item – 75 0 adjustment to tax charge in respect of previous periods 667 Provisions – 1,699 – 1,155 deviating tax base 441 Liabilities – 1,949 – 2,576 national investment tax credits – 122 Deferred income – 228 – 358 tax-exempt income from the disposal of participations – 1,652 Deferred tax liabilities – 28,885 – 34,618 other tax-exempt income – 817 other non-deductible expenses 2,446 Net deferred tax assets (liabilities) 3,809 3,320 other – 118 Tax expenses reported 15,277 After netting out, the deferred taxes are reported in the balance sheet as follows: During the previous year, the stated tax expenses of EUR 10,215 thousand exceeded the expected income tax of EUR 1,563 thousand by EUR 8,652 thousand. The difference 31.12.2001 31.12.2002 resulted essentially from non-deductible amortization on of which of which participation book values (EUR 3,139 thousand) and on goodwill Total long-term Total long-term (EUR 3,612 thousand) as well as on other non-deductible Deferred tax assets 9,075 4,210 9,324 5,097 expenses (EUR 2,722 thousand) and differences in tax rates Deferred tax liabilities – 5,266 – 2,542 – 6,004 – 4,084 (EUR -596 thousand). Net deferred tax assets (liabilities) 3,809 1,668 3,320 1,013 The total income tax expenses in shareholders’ equity are as follows: 2001 2002 Tax expenses reported 10,215 15,277 Tax expenses contained in income due to changes in accounting and valuation methods 90 0 Tax expenses on components of other comprehensive income 1,700 216 Total income tax expenses in shareholders’ equity 12,005 15,493 Notes: notes to the consolidated balance sheet F I N A N C I A L S TAT E M E N T S As at 31 December 2002 the Group has domestic tax loss 7. Intangible assets carryforwards amounting to EUR 2,386 thousand (2001: EUR 2,220 thousand) and foreign tax loss carryforwards of EUR Software 15,875 thousand (2001: EUR 16,292 thousand). The domestic Software breaks down as follows: loss carryforwards can be carried forward without restriction in terms of date and amount. Among the foreign loss carryforwards, the amount of EUR 9,663 thousand may be carried forward 31.12.2001 31.12.2002 without limit and the amount of EUR 4,383 thousand is available Software as per SFAS 86 2,249 1,985 for carryforward until 2013. Software as per SOP 98-1 17,502 17,502 The estimate of their future realizability governs the valuation Other software 3,174 6,617 of deferred tax assets. This is dependent on the creation of Software 22,925 26,104 future taxable profits during accounting periods in which tax valuation differences are reversed and tax loss carryforwards can be applied. In view of the past results of the Group SFAS 86 applies to software which is to be sold, leased or companies and the expectations for the future, it is assumed otherwise marketed. SOP 98-1 applies to software specifically more likely than not that the relevant benefits of the recognized developed for internal use. The item other software contains deferred tax assets will be realized – according to the provisions standard software for internal use. of US GAAP. For the portion of deferred tax assets not covered by these assumptions, a corresponding valuation allowance The anticipated amortization expenses for software during the 103 amounting to EUR 1,691 thousand (2001: EUR 1,917 thousand) coming five financial years are shown below: was applied. The EUR 226 thousand reduction in the valuation allowance on deferred tax assets is essentially due to the new Expected amortization expenses estimate of realizability for the deferred tax assets and to changes in the scope of consolidation. 2003 6,302 2004 5,380 Deferred tax liabilities on retained earnings of foreign subsidiaries 2005 3,767 are not included in the balance sheet because these earnings are intended to remain permanently invested. 2006 1,918 2007 1,477 6. Earnings per share 2001 Goodwill 2001 Pro forma1) 2002 An impairment test is carried out in accordance with Consolidated total income – 4,741 5,651 25,673 SFAS 142 each year to determine the extent to which there Number of shares outstanding is an extraordinary amortization requirement for existing – non-diluted – 26,121,998 26,121,998 26,121,998 goodwill. No requirements for amortization resulted from the Number of shares outstanding impairment test for 2002 or from that for the transition to SFAS 144. – diluted – 26,121,998 26,121,998 26,121,998 The amortization of goodwill during financial year 2001 Earnings per share in EUR – 0.18 0.22 0.98 amounted to EUR 10,392 thousand. The following tables show Earnings per share (diluted) in EUR – 0.18 0.22 0.98 the result from ongoing business activity and the consolidated 1) The column “2001 Pro forma” contains the theoretical values, applying SFAS 142 from total income as if the provisions of SFAS 142 had already come 1 January 2001 onwards. into effect on 1 January 2001. 2001 Notes to the consolidated balance sheet Result from ongoing business activity 3,925 A breakdown of the fixed assets and their development during Scheduled amortization of goodwill from capital consolidation 9,693 the reporting period is given in the fixed assets schedule. Scheduled amortization of goodwill within equity valuation 699 Adjusted result from ongoing business activity 14,317 2001 Consolidated total income – 4,741 Scheduled amortization of goodwill from capital consolidation 9,693 Scheduled amortization of goodwill within equity valuation 699 Adjusted consolidated total income 5,651 Adjusted earnings per share in EUR 0.22 Consolidated fixed assets schedule in EUR’000 Acquisition and manufacturing costs Change Brought in scope forward to Currency of consoli- Reclassifi- Equity As at 1.1.2002 effects dation Additions Disposals cations adjustment 31.12.2002 I. Intangible assets 1. Software 46,644 – 1,164 413 8,838 2,197 1,385 53,919 2. Goodwill 128,856 – 183 37,317 14,204 2,999 177,195 3. Other intangible assets 13,326 –1,347 – 128 898 717 – 1,393 10,639 188,826 – 2,694 37,602 23,940 5,913 –8 241,753 II. Tangible assets 1. Land, land rights and buildings, including buildings on land owned by third parties 30,240 100 139 1,594 188 31,885 104 2. Other equipment, fixtures and fittings 112,807 – 1,161 5,416 17,457 11,849 84 122,754 3. Leased items 26,349 – 27 943 965 712 – 76 27,442 169,396 – 1,088 6,498 20,016 12,749 8 182,081 III. Financial assets 1. Shares in affiliated companies 1,384 3 1,934 2,905 1,004 5,222 2. Loans to affiliated companies 181 –2 100 79 200 3. Participations in associated companies 18,529 – 1,270 – 4,922 2,835 962 – 389 702 14,523 4. Loans to associated companies 9,794 – 121 837 4,199 6,311 5. Other participations 1,638 –4 2 118 389 2,143 6. Available-for-sale securities 1,042 3 21 40 353 753 7. Other loans 9,575 7 87 18 819 8,868 42,143 – 1,384 – 2,878 6,853 7,416 702 38,020 400,365 – 5,166 41,222 50,809 26,078 702 461,854 Notes: consolidated fixed assets schedule F I N A N C I A L S TAT E M E N T S Cumulative depreciation/amortization Book values Change Brought in scope forward to Currency of consoli- Reclassi- As at 1.1.2002 effects dation Additions Disposals Write-ups fications 31.12.2002 31.12.2002 31.12.2001 23,719 – 369 487 6,084 2,104 –2 27,815 26,104 22,925 44,672 – 62 – 56 2,999 41,555 135,640 84,184 8,229 – 1,115 – 30 2,911 660 9,335 1,304 5,097 76,620 – 1,546 401 8,995 5,763 –2 78,705 163,048 112,206 8,732 45 6 796 188 9,391 22,494 21,508 105 85,248 – 743 3,390 12,707 10,488 – 18 78 90,174 32,580 27,559 11,308 –9 217 1,876 518 – 76 12,798 14,644 15,041 105,288 – 707 3,613 15,379 11,194 – 18 2 112,363 69,718 64,108 1,029 3 595 495 950 1,172 4,050 355 75 –1 43 – 12 19 181 106 303 3 301 –5 14,523 18,226 7,081 95 2,943 4,233 2,078 2,713 1,520 1,520 623 118 –3 13 – 26 36 717 1,045 – 130 – 130 8,868 9,705 9,875 100 595 508 4,081 – 17 6,980 31,040 32,268 191,783 – 2,153 4,609 24,882 21,038 – 35 198,048 263,806 208,582 Other intangible assets Other intangible assets are as follows: 2003 15,383 2004 12,519 31.12.2001 31.12.2002 2005 8,608 Other intangible assets 3,683 937 2006 6,471 Payments on account for 2007 5,439 intangible assets 1,414 367 Subsequent years 30,052 Other intangible assets 5,097 1,304 Future minimum lease payments under operating leases 78,472 The expected amortization expenses for other intangible assets within the next five financial years are as follows: b) Capital lease The capitalized leased assets consist of buildings and tangible Expected amortization expenses fixed assets amounting to EUR 27,442 thousand (2001: EUR 2003 275 26,349 thousand). Net of cumulative depreciation, the resultant 2004 200 book value is EUR 14,644 thousand (2001: EUR 15,041 thousand). 106 2005 163 The future minimum lease payments under such agreements are 2006 132 due as follows as at 31 December 2002: 2007 132 2003 3,114 8. Tangible assets 2004 1,782 2005 1,453 Leasing 2006 1,339 The GfK Group leases office premises and business equipment 2007 1,269 under long-term lease agreements. As a rule, the lease payments Subsequent years 13,158 consist of a minimum lease payment plus a contingent lease Future minimum lease payments under capital leases 22,115 payment whose level is governed by the level of use of the leased Less: incidental costs – 27 assets. In cases in which the GfK Group substantially bears the risks and opportunities arising from the use of the leased Less: interest expenses – 6,328 assets, these are capitalized (capital lease). Otherwise the lease Liabilities under capital leases 15,760 payments are carried as an expense (operating lease). There are no significant sub-leases. In April 1992, GfK AG entered into a sale-and-leaseback agreement for part of the office building at Nordwestring 101, a) Operating leases Nuremberg, which qualifies as a capital lease. The lease was The following payments under operating lease agreements were concluded for 30 years with an original obligation amounting to carried as expenses: EUR 13,012 thousand. The lease agreement can be terminated from March 2012 onwards with the option to acquire the building for EUR 7,533 thousand. If the lease continued over 2001 2002 the remaining 10 years, the purchase value in March 2022 would Minimum lease payment 11,455 16,129 amount to EUR 5,028 thousand. Contingent lease payment 268 544 The capital lease liability is EUR 15,760 thousand (2001: Less sub-lease payments received – 50 – 157 EUR 16,282 thousand) of which EUR 2,305 thousand (2001: Less payments 11,673 16,516 EUR 1,852 thousand) has a remaining term of under one year. 9. Financial assets The future minimum lease payments arising from such agreements are due as follows as at 31 December 2002: The composition and development of the financial assets is shown in the Consolidated Fixed Assets Schedule. Further information on the GfK Group's participations in affiliated and associated companies and other participations is provided in the list of shareholdings of the GfK Group. The following table shows the annual results for the main companies in the GfK Group: Notes: notes to the consolidated balance sheet F I N A N C I A L S TAT E M E N T S The profits realized from the reclassification of available-for-sale Company name and registered office Net income for the year securities as current assets amount to EUR 14 thousand (2001: EMER GfK, S.L., Valencia, Spain 642 EUR 6 thousand) for financial year 2002, with no losses (2001: FESSEL-GfK Institut für Marktforschung EUR 4,585 thousand). Ges.m.b.H., Vienna, Austria 578 Realized profits and losses are valued and determined separately GfK Asia Pte Ltd., Singapore, Singapore – 133 for each security. GfK CONSUMER AND BUSINESS INFORMATION ITALY S.p.A., Milan, Italy – 1,632 GfK Custom Research Inc., Minneapolis, USA – 194 10. Trade receivables GfK Danmark A/S, Frederiksberg, Denmark 40 GfK Marketing Services GmbH & Co. KG, Nuremberg 5,136 31.12.2001 31.12.2002 GfK Marketing Services Japan Ltd., Tokyo, Japan 1,149 Invoiced trade receivables, in respect of GfK Marketing Services Ltd., West Byfleet, Surrey, UK 2,419 third parties 104,667 106,927 GfK Marketing Services S.A., Rueil-Malmaison, France 1,791 affiliated companies 106 814 GfK Panelservices Benelux B.V., Dongen, Netherlands 1,126 associated companies 5,478 2,217 GfK Polonia Instytut Badania Opinii Sp. z o.o, Warsaw, Poland 390 other participations 72 0 GfK Sofema International SARL, Rueil-Malmaison, France 790 110,323 109,958 107 GfK Sverige AB, Lund, Sweden – 691 Receivables from long-term contracts not yet invoiced IHA·IMS Health GmbH, Hergiswil, Switzerland 4,541 to third parties 15,123 15,629 IHA-GfK AG, Hergiswil, Switzerland 5,500 125,446 125,587 Institut de Sondage Lavialle (ISL) S.A., Issy les Moulineaux, France 370 Less: valuation allowance – 3,677 – 6,251 Intomart B.V., Hilversum, Netherlands 279 Trade receivables 121,769 119,336 Martin Hamblin GfK Limited, London, UK – 1,383 Martin Hamblin Research Inc., Hartford, Connecticut, USA 559 Of the trade receivables, an amount of EUR 57 thousand Media Markt Analysen GmbH & Co. KG, Frankfurt/Main 335 (2001: EUR 207 thousand) has a remaining term of over one year. Loans 11. Other receivables and assets Loans to affiliated and associated companies include value- adjusted loans with a disbursed amount of EUR 5,165 thousand 31.12.2001 31.12.2002 (2001: EUR 7,226 thousand). The accumulated write-downs on Tax receivables 3,825 5,133 these loans amount to EUR 4,252 thousand (2001: EUR 7,157 Amounts owed thousand). by related parties 286 3,333 Guarantee deposits 1,147 1,324 Securities Accounts receivable from reinsurance 1,216 787 The following table shows an overview of the acquisition costs, Credit balances with suppliers 420 420 fair value and unrealized profits of the portfolio of available-for- Other amounts owed by affiliated sale securities: companies 984 660 Other amounts owed by associated companies 739 2,363 Debt securities 31.12.2001 31.12.2002 Other assets 3,310 3,904 Acquisition costs 1,042 753 11,927 17,924 Fair value 1,045 717 Less: valuation allowance – 1,011 – 1,573 Unrealized profit 9 0 Other receivables and assets 10,916 16,351 The debt securities held in the portfolio at the end of the year Of the other receivables and assets, an amount of EUR 2,709 have a remaining term of over one year. thousand (2001: EUR 3,448 thousand) has a remaining term of The proceeds from the sale of available-for-sale securities over one year. for financial year 2002 amount to EUR 83 thousand (2001: Other assets essentially comprise amounts owed by employees, EUR 1,043 thousand). balances and prepayments as well as claims to refunds. 12. Valuation allowances issuing up to 2,000,000 new no-par bearer shares. At the Extra- ordinary General Meeting of 3 September 1999, a resolution was Valuation allowances developed as follows: passed to relate profit entitlement to the start of the financial year in which options are exercised. The aim of the contingent capital Other increase is to grant option rights to the senior management team Trade receivables of the company and its affiliated companies in terms of §§ 15 receivables and assets et seq. of the German Stock Corporation Act. The prerequisite As at 31.12.2000 2,385 8 for acquiring option rights is the achievement of a minimum Changes in the scope of target, to be agreed with each individual entitled person, for consolidation 185 983 their immediate area of responsibility. The number of options Additions 1,677 26 available to each entitled person is based on the variable salary Utilization – 319 –6 component advised to each entitled person in an individual letter. Release – 269 0 By waiving a portion of the promised bonus in the ratio of 1:2.5, this component can be replaced by options or paid out as a bonus. Currency difference 18 0 The number of options for the first five tranches (2000/2005, As at 31.12.2001 3,677 1,011 2001/2006, 2002/2007, 2003/2008, 2004/2009) results from division by a factor of 4.5. The option rights of the 2000/2005 Changes in the scope of tranche have a term until 31 December 2005, and options not consolidation 422 0 exercised will lapse. The option right can be exercised at the 108 earliest two years after issue and only within the defined exercise Additions 3,053 563 Utilization – 301 0 windows. The exercise price is 120 % of the average price of GfK shares in the Xetra closing auction on the five trading days Release – 573 0 prior to the issue of the option rights, or 120 % of the price of Currency difference – 27 –1 GfK shares in the Xetra closing auction on the date of issue if this As at 31.12.2002 6,251 1,573 is higher than the aforementioned average price. In June 2002, the shareholders consented to cancel the existing authorization to grant option rights and approved a new 13. Securities authorization and an adjustment of the contingent capital. The trading securities reported under current assets had a fair The contingent capital so far permitted which amounts to EUR value of EUR 7,350 thousand (2001: EUR 8,054 thousand) after 2,000 thousand is insufficient to service all the options which acquisition costs of EUR 8,234 thousand (2001: EUR 16,590 thou- can be issued based on the authorization of the General Meeting sand). dated 3 September 1999 and 13 June 2002. The subscribed capital is therefore being increased by using up the permissible maximum amount by a further EUR 1,567,229.44 by issuing up 14. Prepaid expenses to 612,199 no-par bearer shares (contingent capital II). The Prepaid expenses include prepaid pension costs in the amount of shares are being issued to the holders of option rights based EUR 79 thousand (2001: EUR 0). on the resolutions of the company dated 3 September 1999 and 13 June 2002. 15. Shareholders’ equity The new option terms deviate from those of the first programme as follows: Subscribed capital – Members of the Management Board of GfK AG may hold a As at 31 December 2002, the subscribed capital of GfK Aktien- maximum of 30% of the option rights being granted. gesellschaft remains unchanged at EUR 66,872 thousand. The – Options may not be exercised during the 14 days before subscribed capital is divided into 26,121,998 no-par bearer publication of quarterly, half-yearly, annual or provisional shares. Each share represents a portion of the subscribed capital annual figures. In addition, the company may set further equivalent to EUR 2.56. GfK Aktiengesellschaft does not hold periods at its discretion during which options may not be any of its own shares. As the main shareholder, GfK-NÜRNBERG exercised. For each of the tranches to be issued the exercise Gesellschaft für Konsum-, Markt- und Absatzforschung e.V., price to acquire a share is the share's average Xetra price Berlin, holds 64% of the shares. between the respective previous accounts press conference and the General Meeting or if it is higher, the price of the Authorized and contingent capital share in the Xetra closing auction on the trading day on which the respective tranche is issued, plus a premium of 5 %. The Management Board is authorized, subject to the approval of Trading days are those days on which the Frankfurt stock the Supervisory Board, to increase the company’s subscribed exchange determines a price for the company's shares. capital on one or more occasions up to 12 June 2007, by issuing new no-par shares in return for cash or non-cash contributions The application of the new option terms has been resolved for up to a maximum amount of EUR 21,000 thousand. tranche 3 (issue and exercise) and for all subsequent tranches. In June 1999, the shareholders passed a resolution for a contingent increase in the subscribed capital of EUR 5,120 thousand by Notes: notes to the consolidated balance sheet F I N A N C I A L S TAT E M E N T S Stock Options Fair Value information If the accounts were drawn up according to SFAS 123 “Accounting Of which Exercise for Stock Based Compensation”, the fair value would be used in Tranche Term Total Manage- price Exercisable Options options ment Board in EUR from to exercised valuing the stock options. 1 2000/2005 389,165 76,512 55.20 20021) 20051) – The fair value of the stock options issued by GfK during 2000, 2001 and 2002 has been calculated at the date of granting the 2 2001/2006 375,725 85,215 41.71 20031) 20061) – options on the basis of a Black-Scholes option price model, taking 3 2002/2007 380,300 85,215 24.14 20042) 20072) – into account the conditions of issue. The parameters used in 4 2003/2008 518,8393) 149,9993) TBA 20052) 20082) – determining the fair value and the totals based on these were as 5 2004/2009 448,8624) 133,3324) TBA 20062) 20092) – follows: 1) Exercise of options commences after the General Meeting. Options may be exercised during the following periods: from the third trading day on the Frankfurt stock exchange Tranche 1 2 3 after the General Meeting of GfK AG until 30 June (inclusive) and from the first day Implicit volatility on date of issue 33 % 39 % 39 % after publication of the half-yearly figures until 30 September (inclusive) and from the first day after publication of Q3 figures until 14 days before the financial year ends (in- Risk-free investment interest1) 5.2 % 4.8 % 4.7 % clusive). Term in years 5.58 5.59 5.55 2) Exercise of options commences after the General Meeting. Options may not be exercised during the 14 days before publication of quarterly, half-yearly, annual or preliminary Fair value per option in EUR 16.42 12.92 7.63 annual figures. The company may set further periods during which options may not be Total value per programme 6,390 4,854 2,902 exercised. 109 3) Subscribed, entitlement to options does not yet exist, options not yet issued, seven 1) Yields on German public sector bearer bonds outstanding with average remaining terms Management Board members were entitled to subscribe. of over five to six years inclusive. 4) Subscribed, entitlement to options does not yet exist, options not yet issued. The average weighted remaining term of the stock options as at The development of the stock options issued has been as 31 December 2002 was four years (2001: 4.5 years). follows: Supplementary disclosures (valuation at fair value as at 31 2001 2002 December 2002) Average Average exercise exercise The following table shows the parameters and totals of the three Number of price Number of price issued tranches when valued at the 2002 year-end: Options in EUR/share Options in EUR/share Balance at start of year 389,165 55.20 764,890 48.57 Tranche 1 2 3 Options Implicit volatility on closing date 41 % 41 % 41 % granted 375,725 41.71 380,300 24.14 Risk-free investment interest1) 3.2 % 3.4 % 3.7 % Exercised – – – – Term in years 3 4 5 Expired – – – – Fair value per option in EUR 0.18 0.80 2.80 Repayments – – – – Total value per programme 70 302 1,065 Balance at 1) Swap rates with identical maturities. year-end 764,890 48.57 1,145,190 40.46 Exercisable at year-end _ _ 389,165 55.20 As at the reporting date of 31 December 2002, the option value is calculated taking into account the remaining terms of the individual tranches. Market rates as at the balance sheet date of During financial year 2002, the Stock Options Programme 31 December 2002 were used for the parameters. involved no personnel expenses. Other comprehensive income The changes in other comprehensive income are as follows: 2001 2002 Before Tax Before Tax tax effect Net tax effect Net Unrealized profits/losses from market valuation of available-for-sale securities: Change in unrealized profits/losses 30 –6 24 –9 2 –7 Realized profits/losses owing to reclassification 4,579 – 1,795 2,784 – 14 5 –9 Differences from currency conversion – 12 0 –12 –9 0 –9 Total unrealized profits/losses from available-for-sale securities 4,597 – 1,801 2,796 – 32 7 – 25 Difference from pension valuation – 56 22 – 34 56 – 22 34 Difference from currency translation: capital consolidation and equity valuation 650 80 730 – 2,422 – 201 – 2,623 Change in other comprehensive income 5,191 – 1,699 3,492 – 2,398 – 216 – 2,614 Proposed appropriation of profits The following table shows the development of plan assets: In accordance with the German Stock Corporation Act, the dividend that may be distributed is determined by the retained profit reported in the annual financial statements of GfK AG 2001 2002 prepared under the provisions of the German Commercial Code Germany Abroad Germany Abroad (HGB). A proposal will be made to the General Meeting to Fair value of plan assets distribute a dividend of EUR 5,224 thousand (EUR 0.20 per as at 01.01. – 530 34 547 no-par share) to the shareholders out of the retained profit for Price differences – – – – 37 2002 of EUR 32,930 thousand. Actual return on plan assets – 12 2 –3 1 16. Provisions Currency effects – – 45 – – Employer contributions 46 78 368 73 The provisions are broken down as follows: Participant contributions – – 5 – Benefits paid – – 18 – – 20 31.12.2001 31.12.2002 Settlements – – – – 78 Total > 1 year Total > 1 year Fair value of Provisions for plan assets as at 31.12. 34 547 404 486 pensions 17,478 16,252 19,235 17,939 110 Provisions for taxes 4,525 – 5,788 607 Other provisions 39,942 5,209 44,613 4,356 The following table shows the reconciliation from the financing Provisions 61,945 21,461 69,636 22,902 status of the plan assets to the amounts stated in the consolidated balance sheet: Provisions for pensions 2001 2002 Germany Abroad Germany Abroad The following tables provide more detailed information about the GfK Group’s pension plans. Extent to which the pension plan is financed 20,716 946 18,689 1,126 The projected benefit obligation (PBO) has developed as follows: Unrealized actuarial gains/losses – 4,067 – 110 – 519 – 84 2001 2002 Germany Abroad Germany Abroad Non-amortized amount from initial Projected benefit application of SFAS 87 obligation or SFAS 106 13 – 76 11 – 67 as at 01.01. 14,651 1,289 20,750 1,493 Net figure Price differences – – 104 – – 93 reported 16,662 760 18,181 975 Service costs 351 165 1,098 200 Interest costs 803 41 1,096 46 Included in the balance sheet Actuarial gains/losses 4,305 117 –3,299 – 13 Prepaid pension costs – – – 79 – Benefits paid – 518 – 90 – 552 – 97 Pension provision 16,718 760 18,260 975 Plan amendments 1,226 75 – 76 Minimum pension liability in other Settlements – 68 – – – comprehensive income – 56 – – – Projected Net figure benefit obligation reported 16,662 760 18,181 975 as at 31.12. 20,750 1,493 19,093 1,612 Notes: notes to the consolidated balance sheet F I N A N C I A L S TAT E M E N T S The following values result for pension plans in which the concerned. The basis of assessment for contributions to such accumulated benefit obligation (ABO) exceeds the fair value of plans is mainly the length of service with the company and the the plan assets: wage or salary level of the employee. The pension expenses of defined contribution plans were EUR 3,758 thousand (2001: 2001 2002 EUR 3,885 thousand) in financial year 2002. Germany Abroad Germany Abroad Accumulated benefit Other provisions Obligation (ABO) 13,268 1,086 15,846 1,182 Fair value of plan assets The breakdown of other provisions is as follows: at the end of the reporting period 34 547 404 486 31.12.2001 31.12.2002 Personnel 25,018 29,821 The assumptions regarding the discount rate and compensation Sales 2,308 3,515 trends as well as long-term return on the plan assets used to Invoices outstanding 2,515 1,838 calculate the PBO vary depending on the general economic External accounting and auditing costs 1,720 1,704 conditions of the country for which the pension plan has been set Anticipated losses on pending transactions 304 1,275 up. The actuarial calculation of value is based on the following assumptions (weighted averages): Miscellaneous 8,077 6,460 Other provisions 39,942 44,613 111 2001 2002 Discount rate 5.8 % 5.6 % The provisions for employees comprise mainly commitments for Expected long-term return the payment of bonuses, holiday arrears, flexitime balances, on plan assets 0.5 % 2.6 % anniversary expenses and severance payments. Long-term compensation increase 0 % to 9 % 5.1 % Miscellaneous other provisions mainly comprise amounts owed to insurance companies (EUR 1,525 thousand), obligations to households, survey respondents and interviewers (EUR 1,789 The period-related net pension expenses for financial years 2001 thousand), compensation risks (EUR 564 thousand) and financial and 2002 contain the following items: obligations (EUR 544 thousand). Components of 2001 2002 pension expenses Germany Abroad Germany Abroad 17. Financial liabilities Service cost (present Financial liabilities are as follows: value of entitlements acquired during financial year) 351 166 1.098 166 Interest cost 803 41 1.096 32 31.12.2001 31.12.2002 Expected return Amounts due to banks 14,362 24,221 on plan assets –3 – 11 –2 –3 Liabilities under capital leases 1,852 2,305 Amortization of Bills of exchange payable 0 2,013 amounts from initial application of SFAS 87 Other financial liabilities 12,257 5,503 or SFAS 106 –1 4 –1 4 Short-term liabilities with a term Realized gains of up to 1 year 28,471 34,042 and losses 0 0 176 9 Pension expenses (net) 1,150 200 2,367 208 Amounts due to banks 10,464 22,923 of which with a remaining term of over 5 years (0) (4,688) Liabilities under capital leases 14,430 13,455 Defined contribution plans of which with a remaining term of over 5 years (11,174) (10,380) Some companies within the GfK Group offer their staff defined Other financial liabilities 0 2,462 contribution plans. The concrete benefits can vary depending on of which with a remaining term of over 5 years (0) (1,658) the legal, tax and economic framework conditions of the country Long-term liabilities with a term of over 1 year 24,894 38,840 Financial liabilities 53,365 72,882 Other financial liabilities contain loan liabilities totalling EUR 18. Trade payables 3,605 thousand (2001: EUR 0) as at 31 December 2002, of which Trade payables are as follows: EUR 3,502 thousand (2001: EUR 0) concerning related parties. Liabilities from the acquisition of participations stood at EUR 3,819 thousand (2001: EUR 12,257 thousand) as at 31 December 31.12.2001 31.12.2002 Remaining Remaining 2002, of which EUR 344 thousand was in respect of associated Total term > 1 year Total term > 1 year companies and EUR 2,411 thousand (2001: EUR 12,257 thousand) Trade in respect of other related parties. payables As at 31 December 2002, the weighted average interest rate for owed to third parties 32,127 1,603 35,326 413 amounts due to banks was 4.01% (2001: 4.22%). owed to affiliated companies 13 – 734 – The financial liabilities become due in the next five years and thereafter as follows: owed to associated companies 1,076 – 240 – owed to other participations 13 – 18 – 20031) 34,042 Trade payables 33,229 1,603 36,318 413 2004 8,769 112 2005 6,979 2006 4,138 2007 2,228 19. Other liabilities Subsequent years 16,726 The other liabilities comprise the following: Financial liabilities 72,882 1) Contains current account liabilities payable on demand in the context of credit lines 31.12.2001 31.12.2002 Tax liabilities 12,379 15,502 As at 31 December 2002, the GfK Group had confirmed credit Wages and salaries 1,936 1,928 lines of EUR 115,379 thousand (2001: EUR 118,171 thousand), Liabilities in connection with social security 4,955 5,651 of which EUR 82,560 thousand (2001: EUR 105,518 thousand) Amounts owed to employees 1,292 1,937 has not been used. The weighted average rate of interest on the credit lines is 6.43% (2001: 6.16%). Reimbursement commitments 438 1,348 Accounts payable to clients 1,056 1,026 There is collateral amounting to EUR 19,307 thousand (2001: Other accounts payable EUR 20,369 thousand) for amounts due to banks and liabilities to affiliated companies 406 335 under leases amounting to EUR 62,905 thousand (2001: Other accounts payable EUR 41,108 thousand). The collateral is broken down as follows: to associated companies 120 136 Other accounts payable 31.12.2001 31.12.2002 to related parties 421 24 Amounts due to banks secured by Miscellaneous liabilities 12,840 776 mortgages 14,851 15,301 Other liabilities 35,843 28,663 deposit or pledging of securities 3,459 337 assignment of receivables 1,729 1,754 As at 31 December 2002, there were other liabilities amounting other collateral 304 1,248 to EUR 3,093 thousand (2001: EUR 3,535 thousand) with a remaining term of over one year. Liabilities under leases secured by transfer of movable assets 26 543 20. Related parties other collateral 0 124 Secured liabilities 20,369 19,307 During the financial year under review, significant relationships which went beyond the normal business transactions existed with the following persons and groups: In respect of GfK-NÜRNBERG Gesellschaft für Konsum-, Markt- und Absatzforschung e.V., Berlin, the majority shareholder of GfK AG, there were primarily loan and other receivables in the amount of EUR 422 thousand. Notes: supplementary disclosures regarding the balance sheet F I N A N C I A L S TAT E M E N T S Mr Jürgen Ignaczak is a minority shareholder of ENIGMA Institut In the years 2003 to 2007, purchase price payment obligations für Markt- und Sozialforschung Jürgen Ignaczak GmbH, for additional shares of EUR 24,321 thousand (2001: EUR 8,303 Wiesbaden. There is a receivable in respect of him of EUR 2,911 thousand) will result from purchase contracts concluded in thousand, which is a payment on account for the acquisition of connection with acquisitions. the remaining shares in the company. In case of compliance by the contract partners, payment On the basis of loans to GfK Group companies, there were obligations of EUR 407 thousand will arise for the GfK Group liabilities to The NPD Group, Inc., Port Washington, New York, during the years 2003 to 2005 as a result of competition USA, amounting to EUR 510 thousand as at the reporting agreements that have been concluded. date. The future commitments arising from lease agreements are Mr Noel Muracciole is the minority shareholder in Institut described in the section on leases. Français de Recherche S.A., Viroflay, France. There were liabilities of EUR 1,569 thousand. 22. Financial instruments and derivatives Ms Elcin Üner and Mr Ali Levent Orhun are minority share- The GfK Group concludes transactions throughout the world in holders and managing directors of Procon GfK Arastirma various international currencies, which may involve currency Hizmetleri A.S., Istanbul, Turkey. On the reporting date, there risks. Short-term investments, investment in securities and were other liabilities totalling EUR 921 thousand. borrowing from banks take place in various currencies and can There were loan liabilities amounting to EUR 502 thousand result in risks due to changes in exchange rates, rates of interest in respect of the members of the management of various and market prices. 113 subsidiaries. Derivative instruments are selectively used to hedge variable-rate The receivables and liabilities in respect of related parties have a liabilities and to secure future payment flows. As per SFAS 133, remaining term of up to one year. “Accounting for Derivative Instruments and Hedging Activities”, the GfK Group states these at fair value on the reporting date as assets or provisions. Any gains or losses arising from changes in 21. Contingencies and other financial commitments fair value are generally recognized as income or expense. The contingencies and other financial commitments that are The carrying amounts and fair values of the financial instruments not carried as liabilities in the consolidated balance sheet of the GfK Group are shown in the following table. are reported at nominal values and represent the following amounts: 31.12.2001 31.12.2002 Carrying Carrying 31.12.2001 31.12.2002 amount Fair value amount Fair value Commitments arising from Financial instruments, Guarantees and sureties 1,111 701 other than derivatives Furnishing collateral for third parties 619 375 Financial investments 32,268 32,268 31,040 31,040 Ongoing investment projects 1,315 1,202 Securities 8,054 8,054 7,350 7,350 Maintenance, service and licence agreements 9,016 12,194 Liquid funds 47,555 47,555 45,167 45,167 Financial liabilities 53,365 53,365 72,882 72,882 In addition, there are the following contingencies and financial Derivative financial instruments commitments: Assets GfK Aktiengesellschaft has given a guarantee vis-à-vis The NPD Currency hedging Group Inc., Port Washington, New York, USA, corresponding to contracts 226 226 0 0 its participation in Intelect Partnership, Port Washington, New York, USA, held since 1 January 2001 via GfK Holding, Inc., Liabilities Wilmington, USA, to the effect that it assumes 25 % of the Currency hedging liability for the contractual fulfilment of any commitments that contracts 0 0 203 203 may arise for The NPD Group, Inc. from the credit guarantee Interest rate hedging contracts 0 0 735 735 issued to a bank. This credit guarantee was given by The NPD Group, Inc. and Intelect Partnership vis-à-vis the bank in favour of NPD Intelect, L.L.C., a 99 % subsidiary of Intelect Partnership, to secure a loan for USD 8,950 thousand. The loan commitment as at 31 December 2002 amounted to EUR 6,301 thousand (USD 6,563 thousand) in total. 23. Segment reporting Total Depre- The subdivision of the GfK Group into segments is based on the 2002 Sales income ciation organization of the divisions corresponding to the products and Consumer Tracking 85,987 2,416 3,515 services offered. Non-Food Tracking 137,339 24,495 4,883 The GfK Group provides services in the segments Consumer Media 61,280 6,051 2,862 Tracking, Non-Food Tracking, Media, Ad Hoc Research and Ad Hoc Research 246,257 14,462 6,517 Other. Other 28,510 907 7,107 Consumer Tracking: Information services regarding market and Total 2002 559,373 48,331 24,884 marketing matters relating to day-to-day consumer buying Reconciliation 0 – 1,076 0 decisions and habits, providing information on almost all fast Group 2002 559,373 47,255 24,884 moving consumer goods plus a large number of slow moving consumer goods and services. Non-Food Tracking: Information services regarding marketing, sales and logistics in retail and industry for companies operating Total Depre- in consumer technology markets. 2001 Sales income ciation Consumer Tracking 84,799 – 202 4,971 Media: Information services on media consumer behaviour and attitudes. Services include quantitative analyses of viewer, Non-Food Tracking 119,539 17,484 6,221 114 reader and listener reach and qualitative surveys on acceptance, Media 56,527 8,455 2,869 preferences and recall of media content. Ad Hoc Research 199,639 2,830 11,403 Ad Hoc Research: Information services for developing, positioning Other 21,628 – 234 11,537 and maintaining products and services, aimed at optimizing Total 2001 482,132 28,333 37,001 the mix of marketing policy activities and managing product and Reconciliation 0 1,968 0 corporate brands and customer loyalty. Group 2001 482,132 30,301 37,001 Other: Internal services relating to IT and administration, services in connection with data collection, processing and analysis, method and product research and information services External sales by region are as follows: for the healthcare markets. In the GfK Group, the internal control and reporting are largely 2001 2002 based on the same accounting and valuation methods as the Germany 192,409 204,664 consolidated financial statements. Northern Europe 51,965 59,123 The Group measures the success of its segments by reference Western and Southern Europe 148,253 196,661 to the operating income. The operating income of a segment Central and Eastern Europe 23,529 28,484 is determined on the basis of the result before financial income (excluding other income) produced by the Management America 36,801 40,366 Information System. Entries at Group level due to consolidation Asia and the Pacific 29,175 30,075 are not taken into account. These are summarized in the External sales 482,132 559,373 reconciliation to consolidated total income. As a rule, internal Group transactions are carried out at market prices. Sales are attributed to the countries in accordance with During the reporting year and in the previous year, none of the the principle of country of origin. segments recorded sales with any single client of more than 10 % of consolidated sales. The segment information for financial years 2002 and 2001 is as follows: 24. Pro forma statements in accordance with SFAS 141 Due to company acquisitions and other changes to the scope of consolidation, the previous year’s figures cannot be compared directly with the figures for the consolidated financial statements as at 31.12.2002. To facilitate a comparison, the influences resulting from changes are eliminated in the following pro forma statements in accordance with SFAS 141. Notes: changes since the previous year F I N A N C I A L S TAT E M E N T S The following pro forma statement in accordance with SFAS 141 25. Pending litigation and claims for compensation shows selected items from the income statement for 2002 on Neither GfK AG nor any of its subsidiaries were involved in any the assumption that all significant acquisitions and additional significant legal disputes as at 31 December 2002. acquisitions concerning affiliated companies which took place during the last financial year, had already taken place on 1 January 2002. In the pro forma statement, the following transactions are 26. Events after the balance sheet date taken into account: Following the change in the segmentation of equities on the • First-time consolidation of Significant Belgium Deutsche Börse in 2003, GfK shares are now listed on the SDax. With effect from 24 March 2003, the MDax was reduced from • First-time consolidation of the IFR Group companies that have 70 to 50 stocks. According to the rankings published by Deutsche been included Börse on 31 January 2003, GfK was in 58th place on the basis • First-time consolidation of GPI KoFo D of market capitalization and 68th on the basis of share volume traded. On the SDax, which like the MDax includes 50 stocks, • Merger of the Nuremberg operations of IGG KG GfK is ranked 7th. with GfK AG • Additional purchase of a 42.5% stake in GfK CBI Italy 27. Changes since the previous year Accounting in accordance with US GAAP, which the GfK Group 2002 Difference Actual Pro forma Absolute Per cent has applied for the first time in the year under review, differs 115 from the previous HGB accounting. The differences that have Sales 559,373 575,150 15,777 2.8 material effects on the GfK Group’s consolidated financial state- Result from ongoing ments are described below. business activity 45,281 48,617 3,336 7.4 Consolidated total income before minority interests 30,004 32,172 2,168 7.2 Intangible assets Consolidated total income 25,673 27,137 1,464 5.7 In accordance with HGB, only intangible assets acquired for Earnings per share in EUR 0.98 1.04 0.06 6.1 consideration may be capitalized. In accordance with US GAAP, self-produced intangible assets may also be capitalized. The income statement 2001 is the basis for the following Goodwill pro forma statement in accordance with SFAS 141. It has been assumed that all material changes in the scope In principle, goodwill from the first-time consolidation of of consolidation that took place in 2002, had already taken subsidiaries is determined similarly in both accounting systems. place on 1 January 2001. In addition to the above changes In its consolidated financial statements in accordance with in the scope of consolidation, there are the following HGB, the GfK Group made use of the HGB option to offset transactions: goodwill against reserves with no impact on the result. In accordance with US GAAP, up to financial year 2001, there was • First-time consolidation of E+G Spain, G+E Spain, GfK M.S. the duty to amortize goodwill on a straight-line basis. In the Portugal, Intercampus Portugal and Metris Portugal case of acquisitions after 30 June 2001 and in existing cases • First-time consolidation of GfK Macon D from financial year 2002 onwards, goodwill should no longer be subject to regular amortization but should be subject to an • Purchase of an additional 20 % stake in Procon GfK Arastirma annual impairment test, which may involve the application of Hizmetleri A.S., Istanbul, Turkey extraordinary amortization. 2001 Difference Leases Actual Pro forma Absolute Per cent Sales 482,132 529,264 47,132 9.8 The criteria in accordance with which in HGB accounting a leased asset must be capitalized by the lessee are based on taxation Result from ongoing business activity 3,925 7,017 3,092 78.8 rules. They therefore differ from the criteria of US GAAP. As a result, capitalization duties for the lessee under US GAAP (capital Consolidated total income before minority interests – 6,154 – 7,208 – 1,054 – 17.1 leases) are more extensive than under HGB. Consolidated total income – 4,741 – 8,591 – 3,850 – 81.2 Earnings per share in EUR – 0.18 – 0.33 – 0.15 – 83.3 Reinstatement of original values deemed to be quasi-permanent and are not included in the calculation of deferred taxes. Deferred tax assets on tax loss In certain cases, it is prescribed in accordance with HGB that transfers are not permitted in accordance with HGB. write-downs of an asset to a lower attributable value must be reversed by reinstating the original value when the reasons In accordance with US GAAP, deferred taxes are also formed for the earlier write-down cease to exist. US GAAP does not on quasi-permanent differences. It is obligatory to form deferred permit the reinstatement of original values. In the GfK Group taxes on tax loss transfers. On each balance sheet date, the there were no grounds for reinstating original values during extent to which the deferred tax assets can be realized must be the reporting period for § 292 a HGB to be applied. assessed and a valuation allowance made if necessary. Recognition of sales Provisions for pensions and similar obligations In accordance with HGB, a sale made within a sales transaction In accordance with HGB, the valuation of pension obligations is may only be recognized when the service has been completed largely carried out applying the partial value method pursuant to and invoiced. Ongoing orders are reported as inventories until § 6 a EStG (German Income Tax Act), but other methods are also such time. permissible. In accordance with US GAAP, the application of the projected unit credit method is mandatory. In contrast with HGB, In accordance with US GAAP, the recognition of sales is future salary rises of the person entitled to the pension are taken determined by the portion of the deliverable that is already into account. Entitlements in respect of pension funds are offset accomplished. Sales may therefore also be recognized 116 against the provision. In accordance with US GAAP, an allocation before the completion of the deliverable and when services to the pension provisions that initially has no impact on income is have not yet been invoiced. possible in some cases. Reporting unrealized profits Other provisions In accordance with HGB, the principle of prudence does not permit HGB permits the setting up of provisions for amounts owed to the inclusion of unrealized profits, but requires unrealized losses third parties as well as for internal costs such as for example to be stated as soon as they can be anticipated. US GAAP permits maintenance (provisions for expenditure). Provisions must be the inclusion of unrealized profits. valued according to the principle of prudence. For assets and liabilities in foreign currencies, this means that in In accordance with US GAAP, provisions for expenditure are not accordance with US GAAP these need to be converted at the rate permitted. Provisions must be valued at the amount that will most of exchange on the reporting date. Exchange gains and losses probably be used. If several equally probable amounts exist, the are taken to the income statement. lowest of the range must be stated. Securities must be valued at the fair value on the balance sheet date, even if this value is higher than the cost of acquisition. Liabilities on orders in progress The price gain or loss must be recognized in the income state- ment, unless securities are held as fixed assets. In this case, the In accordance with HGB, invoices for prepayments or payments valuation is only stated in the income statement for price losses on account which have not been paid by the balance sheet with permanent character. Otherwise, the write-up or write-down date may not be stated as payments on account received. The has no impact on income. The valuation difference is stated on underlying receivable must also be eliminated, because this is a the liabilities side as other comprehensive income. pending transaction for both sides. HGB provides no specific provisions for the valuation of Given the different way of realizing sales, receivables from derivative instruments, so that the general principles of valuation pending transactions may be reported in accordance with at acquisition cost and of the principle of prudence apply. In US GAAP. Liabilities arising from orders in progress include accordance with US GAAP, derivative instruments must be accrued sales which have resulted from invoices for prepayments valued at their fair value on the balance sheet date. Special rules or payments on account, but cannot yet be recognized as sales apply to hedging transactions. in accordance with the method of realizing sales. The accrued amounts may be matched both by open as well as by already settled receivables. Deferred taxes When applying HGB, deferred taxes are formed for temporary differences between the commercial and tax balance sheets. Differences which only reverse after a long period of time or following the sale of assets or liquidation of companies are Notes: changes since the previous year F I N A N C I A L S TAT E M E N T S Scope of consolidation The following companies, which are consolidated in accordance with HGB, are not included for US GAAP due to their minor In accordance with HGB, subsidiaries are included in the importance in terms of the Group’s net assets, total income and consolidated financial statements if the parent company holds financial position: the majority of the voting rights or if the companies are under the uniform control of the parent company. For a company to • Adfinders B.V., Hoofddorp, Netherlands qualify as an associated company, a participation quota of at least • Exmarket + GfK Praha spol. s.r.o., Prague, Czech Republic 20% is required, as well as the actual exercise of determining influence. • GfK Data Services GmbH, Nuremberg In accordance with US GAAP, the consolidation of subsidiaries • GfK Fernsehforschung GmbH, Nuremberg depends on the control exercised by the parent company. • GfK Marketing Services Verwaltungs-GmbH, Nuremberg The rights of minority shareholders in particular have to be examined to determine whether they hinder the control by the • GfK Marktforschung GmbH, Nuremberg parent company. • GfK Panel Services Consumer Research GmbH, Nuremberg A minimum participation of 20% in accordance with US GAAP • GfK Testmarktforschung GmbH i.L., Nuremberg is not a precondition for qualification as an associated company. By contrast with the corresponding HGB provision, it is only a • Intomart DataCall B.V., Hilversum, Netherlands question of the possibility of exercising a determining influence. • Media Markt Analysen Verwaltungs-GmbH, Frankfurt/Main The reconciliation of the scope of consolidation from HGB 117 • MMO Media-Market-Observer GmbH, Vienna, Austria as at 31 December 2001 to the scope of consolidation in accordance with US GAAP as at 31 December 2001 is described below. In accordance with US GAAP, GfK Marketing Services Hong Kong Limited, Hong Kong, China and GfK Immobilier EURL, Rueil- Malmaison, France, are included in the scope of consolidation as Fully consolidated companies at 31 December 2001. In accordance with HGB, the GfK Group The scope of consolidation in accordance with US GAAP as at had not included these companies in the consolidated financial 31 December 2001 comprised nine (HGB 18) German and 75 statements due to their minor importance. (HGB 86) international subsidiaries in addition to the parent The direct parent companies of the following companies qualify company. as affiliated companies for HGB purposes, but are treated as The following table shows the differences in fully consolidated associated companies for US GAAP purposes. The subsidiaries of subsidiaries between HGB and US GAAP as at 31 December associated companies are not deemed to be Group companies. 2001: • dm-plus Direktmarketing GmbH, Nuremberg • bwv IT solutions AG, St. Gallen, Switzerland Reconciliation of consolidated subsidiaries from HGB to US GAAP (No.) • dm-plus Direktmarketing AG, St. Gallen & Rotkreuz, Switzerland HGB US GAAP 31.12. 2001 Changes 31.12. 2001 • dm michelotti AG, Rotkreuz, Switzerland Germany 18 –9 9 • definitive systems ltd., Zurich, Switzerland Abroad 86 – 11 75 • GfK PORTUGAL - Marketing Services, LDA, Lisbon, Portugal Total 104 – 20 84 • METRIS-MÉTODOS DE RECOLHA E INVESTIGAÇÃO SOCIAL, LDA, Lisbon, Portugal (Metris Portugal). Four subsidiaries which are fully consolidated in accordance with HGB are not included in US GAAP accounting, because Affiliated companies that were not included in the they are qualified by US GAAP as associated companies. consolidated financial statements due to minor importance These are: In deviation from HGB, the GfK Group did not include 21 • bwv Holding AG, St. Gallen, Switzerland (bwv Holding companies (HGB 16) in the consolidated financial statements Switzerland) due to their minor significance for the Group’s net assets, total • EMER GfK S.L., Valencia, Spain (E+G Spain) income and financial position. • Ernst und GfK Grundstücksgesellschaft, Nuremberg (Ernst und GfK D) • G.E. Marketing Research S.A., Valencia, Spain (G+E Spain) Associated companies The following table shows the differences in other participations between HGB as at 31 December 2001 and US GAAP as at 31 The following table shows the differences between HGB as at December 2001: 31 December 2001 and US GAAP as at 31 December 2001 in associated companies: Reconciliation of other participations from HGB to US GAAP (No.) Reconciliation of associated companies from HGB to US GAAP (No.) HGB US GAAP 31.12. 2001 Changes 31.12. 2001 HGB US GAAP 31.12. 2001 Changes 31.12. 2001 Germany 1 –1 0 Germany 2 2 4 Abroad 9 –4 5 Abroad 18 6 24 Total 10 –5 5 Total 20 8 28 In the consolidated financial statements in accordance with Minority interests 118 US GAAP, the GfK Group reports participations in 28 (HGB 20) The minority interests in accordance with HGB are included in associated companies. In accordance with HGB, the GfK Group the consolidated shareholders’ equity. In accordance with US had included the companies Ernst und GfK D, E+G Spain, G+E GAAP, these are reported under borrowed capital. Spain and bwv Holding Switzerland as affiliated companies in the scope of consolidation. In accordance with US GAAP, GfK classifies these companies as associated companies. 28. Supplementary disclosures Five other companies are defined as associated companies Personnel expenses - information pursuant to § 285 No. 8 HGB in accordance with US GAAP, which were reported as other participations in accordance with HGB. These are: The expense items of the income statement contain the following personnel expenses: • Caribou Lake Software, LLC, Minneapolis, USA (Caribou Lake USA) 2001 2002 • INCOMA Consult s.r.o., Prague, Czech Republic Wages and salaries 174,368 199,030 (Incoma Consult Praha) Social security contributions 35,348 45,090 • Information Resources-GfK B.V., Dongen, Netherlands Personnel expenses 209,716 244,120 (IRI/GfK Retail NL) • Information Resources GfK GmbH, Nuremberg (IRI/GfK Retail D) • MMXI Europe B.V., Amsterdam, Netherlands Number of employees (MMXI Europe NL) The GfK Group employed 4,778 (2001: 4,296) staff on average Unlike for HGB, INTERCAMPUS-RECOLHA, TRATAMENTO E during the year under review. The average number of employees DISTRIBUIÇÃO DE INFORMAÇÃO, LDA, Lisbon, Portugal, is over the year was determined on the basis of full-time employees. not reported as a Group company in accordance with US GAAP, The calculation of the average was carried out using the key because its direct parent company is classified by US GAAP dates 31 March, 30 June, 30 September and 31 December. as an associated company whereas it is an affiliated company in The employees were distributed over the divisions as follows: accordance with HGB. 2001 2002 Other participations Consumer Tracking 778 844 The consolidated financial statements as at 31 December 2001 in Non-Food Tracking 1,067 1,304 accordance with US GAAP comprise participations in five (HGB Media 328 332 10) other participations. The five companies classified as other participations by HGB (IRI/GfK Retail D, IRI/GfK Retail NL, MMXI Ad Hoc Research 1,455 1,730 Europe NL, Incoma Consult Praha and Caribou Lake USA) are Other 557 451 included in the consolidated financial statements in accordance 4,185 4,661 with US GAAP as associated companies. Managing Directors/Management Board members 59 71 Trainees 52 46 Full-time employees 4,296 4,778 Notes: supplementary disclosures F I N A N C I A L S TAT E M E N T S Total remuneration and shares of the Management Board and Supervisory Board The total remuneration and shares of the Management Board and Supervisory Board are as follows: Management Board Supervisory Board Fixed component 1,756 68 Variable component 766 84 Stock options (No.) 530,273 – Shares (No.) 410,626 178,283 During financial year 2001, the total remuneration of the Management Board, which contained one person fewer in the previous year, totalled EUR 1,953 thousand. The total remuneration of the Supervisory Board amounted to EUR 137 119 thousand. Former members of the management of GfK GmbH, Nuremberg, and of the Management Board of GfK AG, received total remuneration of EUR 578 thousand (2001: EUR 494 thousand); an amount of EUR 8,255 thousand (2001: EUR 6,813 thousand) was set aside by GfK AG for pension commitments to former members of the Management Board and managing directors. There were no loans or advances to members of the Management Board or Supervisory Board. Also no contingent liabilities were incurred for this group of persons. Supervisory Board Robert Raeber Chairman of the Board of Administration of Clariant AG, Basle, Switzerland Chairman of the Supervisory Board of Peter Zühlsdorff Chairman Nestlé Deutschland AG, Frankfurt/Main Chief Executive Officer of Tengelmann Blaue Quellen AG, Mainz-Weisenau Warenhandelsgesellschaft, Schöller GmbH, Nuremberg Mülheim/Ruhr Member of the Supervisory Board of DIH Deutsche Industrie-Holding GmbH, Maus Frères SA, Geneva, Switzerland Frankfurt/Main Member of the Board of Administration of Chairman of the Supervisory Board of GfK-NÜRNBERG Gesellschaft für Konsum-, TV Loonland AG, Munich Markt- und Absatzforschung e.V., Berlin Escada AG, Munich Member of the Supervisory Board Hajo Riesenbeck Management Consultant of Merck KGaA, Darmstadt Deutz AG, Cologne Since 13 June 2002 Director at McKinsey & Company, Kaiser’s Tengelmann AG, Viersen Düsseldorf Quelle AG, Fürth Member of the Supervisory Board of ERI AG, 120 Chairman of the Board of Administration Wörgl, Austria of GfK-NÜRNBERG Gesellschaft für Konsum-, Member of the Board of Administration Markt- und Absatzforschung e.V., Berlin of GfK-NÜRNBERG Gesellschaft für Konsum-, Markt- und Absatzforschung e.V., Berlin Klaus Hehl Deputy Chairman Market Researcher Dr. Karl Gerhard Until 13 June 2002 Member of the Board of Administration of Schmidt GfK-NÜRNBERG Gesellschaft für Konsum-, Markt- und Absatzforschung e.V., Berlin Dieter Wilbois Senior Specialist Software Development at GfK Aktiengesellschaft Dr. Wolfgang Chairman of the Board of Directors C. Berndt of the Institute For The Future, Menlo Park, Elmar Market Researcher Since 13 June 2002 California, USA Wohlgensinger President of the Board of Administration of Member of the Board of Directors of Cadbury IHA-GfK AG, Hergiswil, Switzerland Schweppes PLC, London, UK Weibel Hess & Partner AG, Stans, Switzerland Member of the Österreichische Werbewissen- Eiphos Holding AG, Hergiswil, Switzerland schaftliche Gesellschaft, Vienna, Austria Telecontrol AG, Hergiswil, Switzerland Member of the Board of Administration Modata AG, Hergiswil, Switzerland of GfK-NÜRNBERG Gesellschaft für Konsum-, Liechti AG, Kriegstetten, Switzerland Markt- und Absatzforschung e.V., Berlin GfM Schweiz, Gesellschaft für Marketing, Zurich, Switzerland Xaver Wyss AG, Ennetbürgen, Switzerland Peter Danzl Independent Works Council representative at GfK Aktiengesellschaft Member of the Board of Administration of Hergiswiler Glas AG, Hergiswil, Switzerland hotelguide.com, Sursee, Switzerland Helga Haub Until 13 June 2002 Rex Sport & Freizeit-Center, Stans, Switzerland Hans-Jürgen Kunert Independent Works Council representative at active light GmbH, Stans, Switzerland GfK Aktiengesellschaft Agnes Waser Immobilien AG, Kilchberg, Switzerland Darum Holding AG, Stansstad, Switzerland Central Swiss Chamber of Commerce, Lucerne, Switzerland GfK-NÜRNBERG Gesellschaft für Konsum-, Markt- und Absatzforschung e.V., Berlin Notes: Supervisory Board and Management Board F I N A N C I A L S TAT E M E N T S Management Board Dr. Franz Merl Chief Financial Officer Since 1 April 2002 Responsible for the Financial Services, Central Services and Personnel Services Dr. Klaus L. Chief Executive Officer divisions Wübbenhorst Deputy Chairman of the Board of Administration of R. Oldenbourg Wilhelm R. Wessels Responsible for the GmbH & Co. KG, Munich Consumer Tracking division and HealthCare activities Chairman of the Board of Directors of GfK Holding, Inc., Wilmington, USA Chairman of the Board of Directors of Procon GfK Arastirma Hizmetleri A.S., GfK Norge A/S, Oslo, Norway Istanbul, Turkey GfK Sverige AB, Lund, Sweden GfK Danmark A/S, Frederiksberg, Denmark Petra Heinlein Responsible for the Member of the Board of Administration of Since 1 January Media division IHA-GfK AG, Hergiswil, Switzerland 2002 IHA Italia S.p.A., Milan, Italy Member of the Board of Administration of Telecontrol AG, Hergiswil, Switzerland Member of the Board of Directors of Liechti AG, Kriegsstetten, Switzerland GfK InfoScan Sverige AB, Lund, Sweden Modata AG, Hergiswil, Switzerland Orange Interactive Research AB, Stockholm, 121 Sweden m2A S.A., Saint Aubin, France Dr. Gérard Hermet Responsible for the Non-Food Tracking division Member of the Supervisory Board of Information Resources – GfK B.V., Dongen, Member of the Supervisory Board of Netherlands G.E. Marketing Research, S.A., GfK Panelservices Benelux B.V., Dongen, Valencia, Spain Netherlands GfK Marketing Services S.A., Rueil-Malmaison, France Member of the Advisory Board of GfK Sofema International SARL, Information Resources GfK GmbH, Rueil-Malmaison, France Nuremberg Financière ISL S.A., Issy les Moulineaux, France Institut de Sondage Lavialle (ISL) S.A., Issy les Moulineaux, France Declaration on the German Corporate Governance Code The declaration prescribed by § 161 of Gerhard Kirschner Until 31 March 2002 the German Stock Corporation Act has been given by the Management Board Heinrich A. Responsible for the and Supervisory Board and has been Litzenroth Ad Hoc Research division made accessible to shareholders. Chairman of the Board of Directors of Custom Research Inc., Minneapolis, USA Chairman of the Board of Administration of GFK CONSUMER AND BUSINESS INFOR- MATION ITALY S.p.A., Milan, Italy Deputy Chairman of the Supervisory Board of GfK MACON AG, Waghäusel Member of the Board of Directors of GfK Holding, Inc., Wilmington, USA Indicorp Participações S.A., São Paulo, Brazil Member of the Supervisory Board of MarketingScan SNC, Rueil-Malmaison, France GfK Ad Hoc Research WORLDWIDE, Brussels, Belgium Shareholdings of the GfK Group As at 31 December 2002 Company name and registered office Share in the capital Financial year Equity in % EUR’000 Affiliated companies (Germany), included in the consolidated financial statements (all details according to US GAAP commercial balance sheet II) Contest-Census Gesellschaft für Markt- und Meinungsforschung mit beschränkter Haftung, Frankfurt/Main 100.0 2002 3961) ENCODEX International GmbH, Nuremberg 95.0 2002 – 421) ENIGMA Institut für Markt- und Sozialforschung Jürgen Ignaczak GmbH, Wiesbaden 51.0 2002 180 GfK CEE Finance GmbH, Nuremberg 100.03) 2002 3,919 GfK MACON AG, Waghäusel 51.0 2002 953 GfK Marketing Services GmbH & Co. KG, Nuremberg 100.0 2002 4,043 GfK PRISMA Institut für Handels-, Stadt- und Regionalforschung GmbH & Co. KG, Hamburg 100.0 2002 444 GPI Kommunikationsforschung Gesellschaft für Pharma-Informationssysteme mbH, Nuremberg 80.0 2002 1,116 Media Markt Analysen GmbH & Co. KG, Frankfurt/Main 100.0 2002 159 3) Modata GmbH, Berlin 100.0 2002 55 122 Affiliated companies (abroad) included in the consolidated financial statements (all details according to US GAAP commercial balance sheet II) ADVAL SARL, Issy les Moulineaux, France 100.03) 2002 117 Adware Media Solutions B.V., Hilversum, Netherlands 100.03) 2002 – 190 Aspemar-GfK N.V., Brussels, Belgium 100.03) 2002 – 205 AUDIMEDIA SARL, Issy les Moulineaux, France 100.03) 2002 972 Audimetrie N.V., Brussels, Belgium 77.83) 2002 483 Borell Market Research AB, Stockholm, Sweden 100.03) 2002 11 Eiphos Holding AG, Hergiswil, Switzerland 100.03) 2002 3,177 EMER GfK, S.L., Valencia, Spain 50.1 2002 2,404 Encodex B.V., Amstelveen, Netherlands 100.03) 2002 – 323 3) Encodex Japan Ltd., Osaka, Japan 63.0 2002 – 533 FESSEL-GfK Institut für Marktforschung Ges.m.b.H., Vienna, Austria 94.8 2002 8,225 Financière ISL S.A., Issy les Moulineaux, France 71.93) 2002 3,494 G.E. Marketing Research, S.A., Valencia, Spain 50.1 2002 5,622 GfK - Centar za istrazivanje trzista d.o.o., Zagreb, Croatia 78.03) 2002 – 551 GfK - MEMRB Marketing Services Limited, Nicosia, Cyprus 60.0 2002 40 GfK (U.K.) Ltd., West Byfleet, Surrey, UK 100.0 2002 16,146 GfK Asia Pte Ltd., Singapore, Singapore 85.0 2002 – 715 GfK Benelux Marketing Services B.V., Amstelveen, Netherlands 100.0 2002 2.527 GfK CONSUMER AND BUSINESS INFORMATION ITALY S.p.A., Milan, Italy 93.5 2002 – 708 GfK Custom Research Inc., Minneapolis, USA 100.03) 2002 6.178 GfK Danmark A/S, Frederiksberg, Denmark 87.0 2002 737 3) GfK Great Britain Ltd., London, UK 100.0 2002 – 42 GfK Holding, Inc., Wilmington, USA 100.0 2002 32,233 GfK Hungaria Piackutató Kft., Budapest, Hungary 100.03) 2002 736 GfK Immobilier EURL, Rueil-Malmaison, France 100.03) 2002 –6 GfK Market Consulting (Shanghai) Co. Ltd., Shanghai, China 100.03) 2002 357 GfK Marketing Services (Malaysia) Sdn. Bhd., Kuala Lumpur, Malaysia 100.03) 2002 289 GfK Marketing Services (Thailand) Limited, Bangkok, Thailand 49.03) 2002 – 44 GfK Marketing Services Australia Pty. Ltd., Sydney, Australia 100.03) 2002 1,185 1) Profit and loss pooling agreement 4) Partially indirect shareholding 7) Share capital (excluding non-voting participation 2) Details as per commercial balance 5) Details not available certificates) sheet II 6) Details as per provisional financial statements 8) Newly established in 2002 3) Fully indirect shareholding drawn up under national law 9) In liquidation Shareholdings F I N A N C I A L S T A T E M E N T S Company name and registered office Share in the capital Financial year Equity in % EUR’000 GfK Marketing Services Hong Kong Limited, Hong Kong, China 85.0 2002 281 GfK Marketing Services Italia S.r.l., Milan, Italy 100.03) 2002 1,779 GfK Marketing Services Japan Ltd., Tokyo, Japan 80.0 2002 4,013 GfK Marketing Services Korea Limited, Seoul, Korea 100.03) 2002 – 997 GfK Marketing Services Ltd., Hong Kong, China 100.03) 2002 1,256 GfK Marketing Services Ltd., West Byfleet, Surrey, UK 100.03) 2002 13,951 GfK Marketing Services S.A., Rueil-Malmaison, France 100.0 2002 2,420 GfK Norge A/S, Oslo, Norway 100.0 2002 303 GfK Panelservices Benelux B.V., Dongen, Netherlands 100.03) 2002 3,420 GfK Panelservices Benelux Holding B.V., Dongen, Netherlands 92.4 2002 6,122 GfK Polonia Instytut Badania Opinii Sp. z o.o., Warsaw, Poland 100.03) 2002 1,510 GfK PORTUGAL - Marketing Services, LDA, Lisbon, Portugal 80.03) 2002 1,316 GfK – Praha, s.r.o., Prague, Czech Republic 100.03) 2002 981 GfK Romania-Institut de Cercetare de Piata Srl, Bucharest, Romania 100.03) 2002 167 GfK Slovakia spol. s r.o., Bratislava, Slovakia 100.03) 2002 230 GfK Sofema International SARL, Rueil-Malmaison, France 100.0 2002 4,460 GfK Sverige AB, Lund, Sweden 100.0 2002 1,009 GfK-Bulgaria, Institut für Marktforschung EGmbH, Sofia, Bulgaria 100.03) 2002 87 123 GfK-RUS Gesellschaft mbH, Moscow, Russia 100.03) 2002 – 121 GfK-Ukrainian Surveys & Market Research (USM), Kiev, Ukraine 100.03) 2002 580 IFR Europe Ltd., London, UK 70.04) 2002 449 IFR France S.A., Viroflay, France 100.03) 2002 570 IFR Italia S.r.L., Milan, Italy 70.04) 2002 59 IFR Marketing España S.L., Madrid, Spain 70.04) 2002 312 IHA Italia S.p.A., Milan, Italy 100.04) 2002 674 IHA-GfK AG, Hergiswil, Switzerland 100.07) 2002 32,856 INCOMA Research, s.r.o., Prague, Czech Republic 60.03) 2002 201 Informark Pty. Ltd., Braddon, Australia 100.03) 2002 54 Institut de Recherche d'Informations statistiques (IRDIS) SARL, Montigny le Bretonneux, France 95.03) 2002 186 Institut de Sondage Lavialle (ISL) S.A., Issy les Moulineaux, France 99.93) 2002 2,317 Institut Français de Recherche S.A., Viroflay, France 51.4 2002 7,662 INTERCAMPUS-RECOLHA, TRATAMENTO E DISTRIBUIÇÃO DE INFORMAÇÃO, LDA, Lisbon, Portugal 50.13) 2002 97 Intomart B.V., Hilversum, Netherlands 100.03) 2002 4,323 Intomart GfK Belgium N.V., Brussels, Belgium 100.03) 8) 2002 2,246 Intomart GfK Group B.V., Hilversum, Netherlands 100.0 2002 1,331 Liechti AG, Kriegstetten, Switzerland 100.03) 2002 1,949 MARKET ANALYSIS E.P.E., Athens, Greece 80.04) 2002 49 Martin Hamblin GfK Healthcare UK Limited, West Byfleet, Surrey, UK 100.0 2002 12,011 Martin Hamblin GfK Limited, London, UK 51.0 2002 – 1,204 Martin Hamblin Research Inc., Hartford, Connecticut, USA 100.03) 2002 1,056 METRIS-MÉTODOS DE RECOLHA E INVESTIGAÇÃO SOCIAL, LDA, Lisbon, Portugal 51.03) 2002 143 MMO Media-Market-Observer GmbH & Co KG, Vienna, Austria 54.63) 2002 – 381 Modata AG, Hergiswil, Switzerland 100.03) 2002 844 Orange Interactive Research AB, Stockholm, Sweden 100.03) 2002 566 Oz Toys Marketing Services Pty. Ltd., Sydney, Australia 51.03) 2002 – 225 1) Profit and loss pooling agreement 4) Partially indirect shareholding 7) Share capital (excluding non-voting participation 2) Details as per commercial balance 5) Details not available certificates) sheet II 6) Details as per provisional financial statements 8) Newly established in 2002 3) Fully indirect shareholding drawn up under national law 9) In liquidation Company name and registered office Share in the capital Financial year Equity in % EUR’000 Procon GfK Arastirma Hizmetleri A.S., Istanbul, Turkey 70.1 2002 941 PS – Martin Hamblin Limited, London, UK 100.03) 2002 29 PT GfK Marketing Services Indonesia, Jakarta, Indonesia 100.03) 2002 40 Romtec-GfK Ltd., Maidenhead, Berkshire, UK 100.03) 2002 0 Significant bvba, Heverlee, Belgium 51.23) 2002 521 Strateji GfK Research Services A.S., Istanbul, Turkey 99.63) 8) 2002 58 Telecontrol AG, Hergiswil, Switzerland 100.03) 2002 2,452 Affiliated companies (Germany), which are not included in the consolidated financial statements GfK Data Services GmbH, Nuremberg 100.0 2002 286) GfK Fernsehforschung GmbH, Nuremberg 100.0 2002 286) GfK International Consultancy & Development GmbH, Nuremberg 100.0 2002 146) GfK Marketing Services Verwaltungs-GmbH, Nuremberg 100.0 2002 286) GfK Marktforschung GmbH, Nuremberg 100.0 2002 296) GfK Panel Services Consumer Research GmbH, Nuremberg 100.0 2002 286) I+G Gesundheits- und Pharmaforschung Verwaltungs-GmbH, Nuremberg 100.0 2002 296) 124 IFR Monitoring Deutschland GmbH, Düsseldorf, Germany 70.04) 2002 826) Media Markt Analysen Verwaltungs-GmbH, Frankfurt/Main 100.0 2002 286) PRISMA Projekt-Beratung GmbH, Hamburg 100.0 2002 496) Affiliated companies (abroad), which are not included in the consolidated financial statements Adfinders B.V., Hoofddorp, Netherlands 100.03) 2002 – 6546) CATICALL – RECOLHA DE INFORMAÇÃO ASSISTIDA POR COMPUTADOR, LDA, Lisbon, Portugal 100.03) 2002 52) 3) CMI Field SARL, Viroflay, France 100.0 2002 326) 3) dragon eye Ltd., Hergiswil, Switzerland 100.0 2002 05) 3) GfK Ad Hoc Research WORLDWIDE, Brussels, Belgium 75.6 2002 06) 3) GfK Belgium S.A., Brussels, Belgium 100.0 2002 5596) 3) GfK Belgrade d.o.o., Belgrade, Federal Republic of Yugoslavia 100.0 2002 492) GfK do Brasil S/C Ltda., São Paulo, Brazil 100.0 2002 6936) 3) GfK InfoScan Sverige AB, Lund, Sweden 92.0 2002 786) GfK Marketing Services South Africa, Sandton, South Africa 100.0 2002 2186) GfK NPD Marketing Services Worldwide B.V., Amstelveen, Netherlands 75.0 2002 – 226) GfK Panel Arastirma Hizmetleri A.S., Istanbul, Turkey 93.53) 2002 586) 3) GfK Stratégie et développement GIE, Rueil-Malmaison, France 100.0 2002 766) 5) 9) I + G Infratest Medical Research Inc., Rhode Island, USA 100.0 2002 4) IFR Nederland B.V., Amsterdam, Netherlands 70.0 2002 376) 3) IFR Polska Sp. z o.o., Warsaw, Poland 100.0 2002 156) 4) IFR U.K. Ltd., London, UK 71.3 2002 – 566) I+G Infratest & GfK Gesundheitsforschung (Suisse) GmbH, Basle, Switzerland 85.0 2002 – 3966) Intomart DataCall B.V., Hilversum, Netherlands 100.03) 2002 – 3376) MMO Media-Market-Observer GmbH, Vienna, Austria 100.03) 2002 416) MMXI Switzerland GmbH, Hergiswil, Switzerland 80.23) 2002 – 7292) Procon GfK Ltd., Baku, Azerbaijan 100.03) 2002 26) 1) Profit and loss pooling agreement 4) Partially indirect shareholding 7) Share capital (excluding non-voting participation 2) Details as per commercial balance 5) Details not available certificates) sheet II 6) Details as per provisional financial statements 8) Newly established in 2002 3) Fully indirect shareholding drawn up under national law 9) In liquidation Shareholdings F I N A N C I A L S TAT E M E N T S Company name and registered office Share in the capital Financial year Equity in % EUR’000 Associated companies (Germany) 5) 5) ConsumerSCOPE International GIE, Nuremberg 40.0 2) Ernst und GfK Grundstücksgesellschaft, Nuremberg 50.0 2002 587 Information Resources GfK GmbH, Nuremberg 19.6 2002 – 11,0806) Associated companies (abroad) bwv Holding AG, St. Gallen, Switzerland 66.73) 2002 – 3,0936) 3) Caribou Lake Software, LLC, Minneapolis, USA 19.9 2002 – 5302) 3) 5) 5) Common Technology Centre EEIG, London, UK 25.0 5) 5) Europanel Raw Database GIE, Brussels, Belgium 50.0 5) European Flash Surveys EEIG, Brussels, Belgium 50.0 2002 GfK-Media Research Middle East AG, Hergiswil, Switzerland 49.03) 8) 2002 5) 3) Holden Pearmain Research Ltd., London, UK 20.0 2002 2312) IHA·IMS Health GmbH, Hergiswil, Switzerland 50.03) 2002 4,8622) INCOMA Consult, s.r.o., Prague, Czech Republic 19.53) 2002 972) 3) Indicorp Participações S.A., São Paulo, Brazil 19.9 2002 4242) Information Resources-GfK B.V., Dongen, Netherlands 19.9 2002 – 4,2442) 125 3) Intelect Partnership, Port Washington, New York, USA 25.3 2001/2002 17,2252) Isometric Solutions, LLC, Minneapolis, USA 40.03) 2002 – 512) 3) Jan Schipper Compagnie B.V., Bussum, Netherlands 20.0 2002 1306) m2A S.A., Saint Aubin, France 35.0 2002 3562) MarketingScan SNC, Rueil-Malmaison, France 50.0 2002 2,8062) 3) Media Focus (ARGE), Hergiswil, Switzerland 50.0 2001/2002 5976) NET SURVEY SZONDA IPSOS és GfK Hungária Internet Kutató Intézete Kft., Budapest, Hungary 50.03) 2002 02) 3) ORG-GfK Marketing Services (India) Private Limited, Mumbai, India 40.0 2001/2002 263 Sports Tracking Europe B.V., Amstelveen, Netherlands 25.0 2001/2002 456) St. Mamet Saisie Informatique (SMSI) SARL, Saint Mamet-la Salveta, France 20.03) 2002 4822) UFO Veld B.V., Amsterdam, Netherlands 50.03) 2002 – 36) Unified Fieldwork Organisation UFO V.O.F., Amsterdam, Netherlands 50.03) 2002 5) V.O.F. Projectbureau Politiemonitor, Hilversum, Netherlands 50.03) 2002 5) Other participations (abroad) Bureau voor Reclame Statistiek Hoofddorp B.V., Hoofddorp, Netherlands 49.03) 2002 5) 5) IRI Infoscan Ltd., Maidenhead, Berkshire, UK 5.8 2002 1) Profit and loss pooling agreement 4) Partially indirect shareholding 7) Share capital (excluding non-voting participation 2) Details as per commercial balance 5) Details not available certificates) sheet II 6) Details as per provisional financial statements 8) Newly established in 2002 3) Fully indirect shareholding drawn up under national law 9) In liquidation 126 Auditors’ Report F I N A N C I A L S TAT E M E N T S AUDITORS’ REPORT We have audited the consolidated financial statements, comprising In our opinion, the consolidated financial statements give a true the balance sheet, the income statement and the statements and fair view of the net assets, financial position, results of of changes in shareholders’ equity and cash flows as well as the operations and cash flows of the Group for the business year in notes to the financial statements prepared by the GfK Aktien- accordance with Accounting Principles Generally Accepted in gesellschaft, Nuremberg for the business year from 1 January 2002 the United States of America. to 31 December 2002. The preparation and the content of the Our audit, which also extents to the group management report consolidated financial statements in accordance with Accounting prepared by the Company’s management for the business year Principles Generally Accepted in the United States of America from 1 January 2002 to 31 December 2002, has not led to any (US GAAP) are the responsibility of the Company’s management. reservations. In our opinion on the whole the group management Our responsibility is to express an opinion on these consolidated report provides a suitable understanding of the Group’s position financial statements based on our audit. and suitably presents the risks of future development. In addition, We conducted our audit of the consolidated financial statements we confirm that the consolidated financial statements and the in accordance with German auditing regulations and German group management report for the business year from 1 January generally accepted standards for the audit of financial statements 2002 to 31 December 2002 satisfy the conditions required for promulgated by the Institut der Wirtschaftsprüfer (IDW). Those the Company’s exemption from its duty to prepare consolidated standards require that we plan and perform the audit such financial statements and the group management report in that it can be assessed with reasonable assurance whether accordance with German law. the consolidated financial statements are free of material misstatements. Knowledge of the business activities and the 127 economic and legal environment of the Group and evaluations of possible misstatements are taken into account in the Nuremberg, 3 April 2003 determination of audit procedures. The evidence supporting the amounts and disclosures in the consolidated financial statements Bayerische Treuhandgesellschaft is examined on a test basis within the framework of the audit. Aktiengesellschaft The audit includes assessing the accounting principles used and Wirtschaftsprüfungsgesellschaft significant estimates made by management, as well as evaluating Steuerberatungsgesellschaft the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our Kozikowski Renner opinion. (German Public Auditor) (German Public Auditor) In case of publication or transmission of the consolidated financial statements in a version different to the version confirmed by us (including translations into other languages), in so far as our audit opinion is quoted or our review referred to, a new statement is to be obtained from us. Please refer to § 328 HGB (German Commercial Code). 128 A Konzernbilanz L J A N R E SR MS CT ILO N S DDITIONA I H FO AB A H US A D D I T I O N A L I N F O R M AT I O N 130 Glossary of financial terminology 131 Glossary of specialist marketing terms 133 List of company abbreviations used in the management report 134 Contacts C3* The GfK Group: five-year overview C3* Index C4* Financial calendar 129 * Cover pages are marked with “C” Glossary of financial terminology Affiliated companies Equity ratio Other expenses Companies which are controlled by the On balance sheet equity in relation to Expenses in connection with ordinary parent company. As a rule, the parent total assets. The higher the indicator, the business activities, excluding financial company holds the majority of the voting lower the level of indebtedness. expenses not attributable to cost rights and capital of the company. of sales or selling and general Free float administrative expenses. Examples are Associated companies Free float is the portion of shares in a losses from the disposal of fixed assets Minority participations in companies on joint stock company measured in terms of and exchange losses. whose business or company policy a the total number of shares issued, which decisive, but not controlling influence is is not held by major shareholders. At GfK, Other financial income exercised. Associated companies are in 36% of the share capital is in free float. Financial income which is not attributable principle valued at equity. to income from participations or net Goodwill interest income. Examples are profits or Cash flow Intangible business asset that represents losses on the disposal of securities and Balance of funds inflow and outflow the value of the existing organization, its write-downs on loans. affecting payment. image, client base etc. at the time of acquisition of a company. Calculation: Other income Cost of sales purchase price of the company less pro Income from ordinary business activities, All types of operating costs which can be rata net worth. excluding financial income, which does 130 directly allocated to clients’ orders. These not represent sales. Examples are profits include in particular costs for external Gross cash flow on the disposal of fixed assets and data procurement, costs for interviewees Income for the accounting period less exchange gains. and interviewers. shares of income attributable to minority interests, depreciation and amortization Other participations Cost of sales accounting and write-ups, deferred tax expenses and Companies in which a participation is Form of income statement which shows income, income from at equity valuations held but on whose business policy no the income achieved in the market during which have no effect on payment, book decisive influence is exercised. The the accounting period. Opposite: total cost profits and losses on asset disposals, net participation quota is below 20 %. accounting. Here the total operating interest income, changes in provisions income for the period is shown, whereby and other expenses/income not affecting Selling and general administrative the sales and changes in inventories are payment. expenses shown against the total cost. Both forms Operating costs which are not directly of accounting produce the same income Gross income from sales related to individual client orders such as for the accounting period. Sales less cost of sales. costs for general marketing measures and for accounting. Deferred taxes Income from participations Tax assets or charges reported in the Contains the items income from Stock option programme balance sheet to equalize the difference participations, profits and losses on Profit-sharing programme for managers, between the tax debt actually assessed the disposal of participations and whereby managers waive variable salary and the commercial tax burden based on depreciation on participations. components and instead receive options. the accounting in accordance with Options can be exercised at the earliest US GAAP for the commercial balance Majority participations after two years within set periods. In order sheet. The basis for determining deferred Affiliated companies for options to be received, the managers taxes is the difference between the value entitled must achieve individually agreed of the assets and liabilities reported in Minority participations targets and the price of the GfK share the balance sheet in accordance with Generic term for associated companies must be above the exercise price. US GAAP and the local tax balance sheet. and other participations. The participation quota is below 50 %. US GAAP EBIT Abbreviation for United States Generally Abbreviation for earnings before interest Net interest income Accepted Accounting Principles. and taxes calculated as operating Interest income less interest expenses. income plus other income less other This item includes interest income and expenses. expenses on bank credits and liabilities, loans, securities, liabilities under leases EBIT margin and other accounts receivable and EBIT in relation to sales. The higher payable. the indicator, the higher the earnings power. Operating income Gross income from sales less selling and general administrative expenses. Most important internal earnings indicator. Glossaries ADDITIONAL INFORMATION Glossary of specialist marketing terms Ad Hoc Research CLASS (Customer Loyalty and Data mining Systematic, empirical research, used Satisfaction Study) Computer-aided data analysis used to as the basis for marketing decisions. A study carried out on behalf of Coca-Cola identify trends and correlations. Ad Hoc Research is one of GfK’s business on customer loyalty. divisions. Data warehouse Concept test, concept test research Integrated system of databases used to Advertising test Tools used to assess acceptance of a new support business decisions, particularly Testing of ads, commercials and other product or advertising campaign based on in marketing; S*T*A*R*T*R*A*C*K. advertising media before or after they are a verbal description or picture, carried out published or shown. before a product test. ECPO (Electronic Consumer Panel Online) AGF (Television Research Partnership) Consumer panel Consumer Tracking technology used The body for which GfK Fernsehforschung A sample of households which provide to collect information on purchasing by carries out continuous television audience regular information on their purchases; means of various electronic devices or research in Germany. Founded in 1988, ConsumerScope, ConsumerScan, applications (Internet, personal digital the AGF now comprises the TV networks aTRACKtive, BASS, electronic diary. assistant, mobile phone). ARD, ProSiebenSAT.1 Media AG, RTL and ZDF. ConsumerScan Electronic diary Consumer panel in which the purchasing A hand-held piece of electronic equipment AGF/GfK TV panel behaviour of households and individuals used to input data, which is then 131 TV panel. is recorded. Covers purchases of nearly all downloaded by modem. Used by the fast moving consumer goods. Households consumer panel, ConsumerScan. aTRACKtive record their purchases using an A software package used to carry out electronic diary; panel, household ENCODEX standard and one-off analyses of data from panel, aTRACKtive, BASS. An interface for business-to-business the consumer panel ConsumerScan. e-commerce transactions in consumer aTRACKtive*web is the Internet-compatible ConsumerScope durables. version of aTRACKtive, giving clients and Mail panel, carrying out continuous employees anywhere in the world access surveys of purchases of consumer goods Gain and loss forecast to the ConsumerScan databases at any with slower-moving acquisition cycles and Qualitative instrument developed as time. the use of services; consumer panel. part of Integrated Intelligence and used for target group segmentation; Audience research Consumer Tracking market segmentation. Media research. A survey of households and individual consumers that is repeated at regular GfK*PackChallenger® BASS (Brand ASsessment System) intervals: Consumer Tracking is one of Quantitative packaging test from Example of an instrument relating to the GfK’s business divisions; tracking, GfK Ad Hoc Research. Integrated Intelligence approach. This panel, household panel, ECPO. combines data from the consumer Household panel panel ConsumerScan and from Copy test A representative sample of households image and brand research in order to Survey research procedure where a which regularly report on their purchases; monitor the psychological and monetary magazine or newspaper is used to Consumer Tracking, ConsumerScan, value of a brand; data merging, determine what the interviewee has panel. brand value. seen, read, recognized and retained. Image research Brand value CSS® (Controlled Split Survey) Information gathering relating to the The value of a brand, which is determined GfK questionnaire splitting procedure to image of a company or specific product or by considering various factors which reduce time and money spent on oral and service; BASS. make a brand attractive to consumers; written surveys. BASS. Integrated Intelligence Customer loyalty research Service segment which specializes in Category Management Surveys to measure and improve customer integrating data from several GfK Group A concept whereby manufacturers and satisfaction and customer loyalty; divisions and using it for complex retailers set joint targets and develop CLASS. consumer marketing surveys covering strategies for a particular product several areas; data merging, BASS, category and then endeavour to realize Customer segmentation gain and loss forecast. these. The aim is to increase sales and Market segmentation. income. Internet reach Data merging The percentage of the total population A statistical process whereby the features or a given target group reached by a of subjects in one sample are transferred website; reach, media research. to those in another sample; Integrated Intelligence, BASS, MOVE. Mail panel Portable people meter Target group segmentation A postal survey of units of the same Metering equipment which is used in Market segmentation. sample which is repeated at regular reach research and worn at all times. intervals; ConsumerScope. A typical portable people meter is Telecontrol XL Radiocontrol. The latest generation of TV meters Market segmentation produced by GfK subsidiary, Telecontrol. Divison of an overall market into sub- Product test, product test research markets using different categories. Concept test, concept test research. Tracking Segmentation can be by product type, Surveys of individuals, households and price classes, geographic split or socio- Radiocontrol companies, repeated at regular intervals economic lifestyle features and value Electronic meter, incorporated into a and using the same interview method categories; gain and loss forecast. wristwatch, that measures radio listening; each time. Unlike a panel, the data is reach reach research media not necessarily collected from the same Media research research, portable people meter. sources each time, but the structure of Systematic, empirical research used as the sample is the same in each case; a basis for media planning by media Radio research Consumer Tracking, retail tracking. companies, their advertising clients, and Measuring the listening habits of radio others. This form of research is the listeners; Radiocontrol. TV meter responsibility of GfK’s Media business; An electronic instrument that measures a 132 reach, reach research, Radiocontrol. Ratings figures person’s TV viewing at regular intervals; The audience figures in terms of in Germany and Austria this is done on Media reach research households expressed as a percentage; a second-by-second basis; TV panel, Reach research. TV panel. Telecontrol XL. Modelling Reach TV panel Method used to illustrate a complex real The percentage of the total population or A representative sample of households, situation in simplified form taking account a specific target group reached by a selected using statistical methods, whose of the essential elements and correlations. medium. A central concept in media TV viewing is continuously metered by The result is a model which can be used planning and media research; reach GfK Fernsehforschung and used as the to analyze and simulate problems and research, TV panel, Radiocontrol. basis for audience share and ratings produce forecasts. figures; TV meter, reach, panel. Reach research Modelling analyses The continuous recording of media Modelling. usage; reach, portable people meter, Radiocontrol. MOVE Name of a data merging project of GfK, whereby the ConsumerScan panel of Retail panel GfK Panel Services and the TV panel Regular recording of sales, product of AGF/GfK Fernsehforschung are categories and products via a merged. The aim is to provide the representative sample of retailers with advertising market with improved target different retail types and sales channels; group differentiation and analyses of Non-Food Tracking, retail tracking. advertising effectiveness monitoring. Retail research Non-Food Tracking Retail tracking. Surveys of sales of consumer durables, carried out at regular intervals. Retail tracking Non-Food Tracking is one of GfK’s Continuous, systematic monitoring of business divisions; retail tracking, sales in consumer durables and services retail panel, S*T*A*R*T*R*A*C*K. markets. These product movements are recorded in all relevant sales channels Panel and distribution forms in the retail trade; A survey of individuals, households, tracking, Non-Food Tracking, companies etc. to obtain data on a single retail panel. subject at regular intervals over a longer period, using the same sample and S*T*A*R*T*R*A*C*K carried out using the same methods each A host-free IT platform for the production time; TV panel, ConsumerScan, and analysis of data from the GfK Non- ConsumerScope, household panel, - Food Tracking business; data ware- tracking. house. Company abbreviations ADDITIONAL INFORMATION List of company abbreviations used in the Management Report bwv Group, Switzerland GfK Custom Research, USA m2A, France bwv Holding Ag, St. Gallen, Switzerland GfK Custom Research Inc., Minneapolis, m2A S.A., Saint Aubin, France bwv IT solutions AG, St. Gallen, USA Switzerland Martin Hamblin GfK HealthCare UK, UK definitive systems ltd., Zurich, Switzerland GfK MACON, Germany Martin Hamblin GfK Healthcare UK dm michelotti AG, Rotkreuz, Switzerland GfK MACON AG, Waghäusel, Germany Limited, West Byfleet, Surrey, UK dm-plus Direktmarketing AG, St. Gallen & Rotkreuz, Switzerland GfK Portugal, Portugal Martin Hamblin GfK, UK GfK PORTUGAL – Marketing Services Martin Hamblin GfK Limited, London, UK IFR Group, France LDA, Lisbon, Portugal CMI Field SARL, Viroflay, France Martin Hamblin GfK Research Inc, USA Institut Francais de Recherce S.A., GPI Kommunikationsforschung, Martin Hamblin Research Inc, Hartford, Viroflay, France Germany Connecticut, USA IFR Europe Ltd., London, UK GPI Kommunikationsforschung IFR France S.A., Viroflay, France Gesellschaft für Pharma-Informations- Metris, Portugal IFR Italia S.r.L., Milan, Italy systeme mbH, Nuremberg, Germany METRIS-MÉTODOS DE RECOLHA E IFR Marketing España S.L., Madrid, Spain INVESTIGAÇÃO SOCIAL LDA, Lisbon, IFR Monitoring Deutschland GmbH, I+G Group, Germany Portugal Düsseldorf, Germany GPI Kommunikationsforschung IFR Nederland B.V., Amsterdam, Gesellschaft für Pharma- Orange Interactive Research, Sweden 133 Netherlands Informationssysteme mbH, Nuremberg, Orange Interactive Research AB, IFR Polska Sp. z.o.o., Warsaw, Poland Germany Stockholm, Sweden IFR U.K. Ltd., London, UK I+G Gesundheitsforschung GmbH & Co., Nuremberg, Germany Significant GfK, Belgium IHA-GfK-Group, Switzerland Infratest + GfK Gesundheitsforschung Significant bvba, Hervelee, Belgium bwv Holding AG, St. Gallen, Switzerland GmbH & Co., Berlin, Germany Eiphos Holding AG, Hergiswil, Strateji GfK, Turkey Switzerland Indicator GfK, Brazil Strateji GfK Research Services A.S., IHA-GfK AG, Hergiswil, Switzerland Indicator Pesquisa de Mercado Ltda, Istanbul, Turkey IHA·IMS Health GmbH, Hergiswil, São Paolo, Brazil Switzerland Indicator Servicos de Informação Ltda, Telecontrol, Switzerland IHA Italia S.p.A., Milan, Italy São Paolo, Brazil Telecontrol AG, Hergiswil, Switzerland Liechti AG, Kriegstetten, Switzerland Indicorp Participações S.A., São Paolo, Media Monitoring Switzerland AG, Berne, Brazil Switzerland dragon eye Ltd., Hergiswil, Switzerland Informark, Australia Media Focus (ARGE), Hergiswil, Informark Pty. Ltd., Braddon, Australia Switzerland Modata AG, Hergiswil, Switzerland Intercampus, Portugal Modata GmbH, Berlin, Germany INTERCAMPUS-RECOLHA, Telecontrol AG, Hergiswil, Switzerland TRATAMENTO E DISTRIBUIÇÃO DE INFORMAÇÃO LDA, Lisbon, Portugal Emer-GfK, Spain EMER GfK S.L., Valencia, Spain Intomart GfK, Netherlands Intomart GfK Group B.V., Hilversum, ENIGMA GfK, Germany Netherlands ENIGMA Institut für Markt- und Intomart B.V., Hilversum, Netherlands Sozialforschung Jürgen Ignaczak GmbH, Aspemar-GfK N.V., Brussels, Belgium Wiesbaden, Germany Audimetrie N.V., Brussels, Belgium Adware Media Solutions B.V., Hilversum, G.E. Marketing Research, Spain Netherlands G.E. Marketing Research S.A., Valencia, Spain IRI/GfK, Germany Information Resources GfK GmbH, GfK AG, Germany Nuremberg, Germany GfK Aktiengesellschaft, Nuremberg, Germany Contacts If you wish to order further copies of the Annual Report or have any questions, please contact: Public Affairs and Communications Publisher: Dr. Ulrike Schöneberg GfK AG Fon +49 (0) 911 - 395 26 45 Nordwestring 101 Fax +49 (0) 911 - 395 40 41 90319 Nuremberg firstname.lastname@example.org http://www.gfk.com Special contribution: Investor Relations Michael J. Naples, Princeton, New Jersey, USA Bernhard Wolf Editorial support services: Fon +49 (0) 911 - 395 20 12 Medienservice Peter Reichard, Ebersberg Fax +49 (0) 911 - 395 40 75 email@example.com Design: Scheufele Kommunikationsagentur GmbH, 134 Frankfurt am Main Photography: Annette Frick, Frankfurt This Annual Report is also available Lithography: in German. Mainteam, Aschaffenburg Translation: The English language version is a AGET Limited, London, UK translation of the audited German Annual Report. Printing: Druckerei Eugen Seubert, Nuremberg Printed on unchlorinated bleached paper THE GfK GROUP: FIVE-YEAR OVERVIEW Accounting as per HGB (German Commercial Code) Accounting as per US GAAP Income 1998 19991) 2000 2001 2001 2002 Change Income statement Pro in %2) statement forma Total performance 309.2 380.4 469.0 482.1 505.8 559.4 + 10.6 Sales thereof Consumer Tracking3) 60.9 82.4 89.4 84.8 84.8 86.0 + 1.4 thereof Consumer Tracking3) thereof Non-Food Tracking3) 91.1 100.9 112.9 119.5 122.2 137.3 + 12.4 thereof Non-Food Tracking3) thereof Media3) 40.5 47.9 53.6 56.5 62.6 61.3 – 2.1 thereof Media3) thereof Ad Hoc Research3) 101.8 128.4 183.5 199.6 214.5 246.3 + 14.8 thereof Ad Hoc Research3) thereof Other3) 17.6 21.4 30.2 21.6 21.6 28.5 + 31.8 thereof Other3) Proportion from outside Germany in % 49.5 56.9 62.4 60.1 62.0 63.4 – Proportion from outside Ger in % Personnel expenses 131.9 166.9 206.7 209.7 223.2 244.1 + 9.4 Personnel expenses Depreciation and amortization4) 18.1 20.5 16.6 37.0 28.2 24.9 – 11.7 Depreciation and amortization Gross cash flow 30.4 33.7 50.1 44.8 – 40.7 – 9.2 Free cash flow EBITDA 34.5 44.1 53.0 52.8 58.0 68.5 + 18.2 EBITDA EBIT 16.4 23.6 36.4 15.8 29.8 43.6 + 46.6 EBIT Net income from participations 1.7 3.2 3.0 3.7 2.9 6.4 +119.6 Net income from participations Result from ongoing Result from ongoing business activity 17.0 27.1 37.1 3.9 17.0 45.3 + 165.9 business activity Consolidated total income Consolidated total income before minority interests 10.7 13.7 25.4 – 6.1 5.5 30.0 + 449.6 before minority interests Balance sheet Balance sheet Fixed assets 75.6 97.9 77.2 208.6 – 263.8 + 26.5 Fixed assets Investments 54.5 44.3 35.2 108.3 – 76.6 – 29.3 Investments thereof in tangible fixed assets 45.2 39.2 23.2 31.1 – 28.6 – 8.1 thereof in tangible fixed assets thereof in financial assets 9.3 5.2 11.9 77.2 – 48.0 – 37.8 thereof in financial assets Current assets 92.7 89.1 190.4 189.8 – 189.8 – 0.1 Current assets Shareholders’ equity 51.8 55.6 132.7 163.1 – 181.5 + 11.3 Shareholders’ equity Capital ratio in % 30.8 29.7 49.6 39.5 – 38.7 – Capital ratio in % Borrowings5) 114.3 129.7 133.1 243.3 – 281.2 + 15.6 Borrowings5) Total assets 168.3 187.0 267.6 413.1 – 469.6 + 13.7 Total assets Key indicators Key indicators EBIT margin in % 5.3 6.2 7.8 3.3 5.9 7.8 – EBIT margin in % EBIT margin after income from EBIT margin after income from participations in % 5.9 7.0 8.4 4.0 6.5 8.9 – participations in % Earnings per share in EUR 0.54 0.33 0.88 – 0.18 0.24 0.98 + 308.3 Earnings per share in EUR Return on equity in % 25.2 13.0 16.5 – 2.9 – 14.9 – Return on equity in % Dividend per share in EUR 0.08/0.10 0.13 0.15 0.17 – 0.20 + 17.6 Dividend per share in EUR Total dividend 1.3 3.4 3.9 4.4 – 5.2 + 17.6 Total dividend Year-end share price in EUR – 40.00 31.00 20.39 – 12.81 – 37.2 Year-end share price in EUR Average no. of shares Average no. of shares (in thousands) 20,000 21,122 26,122 26,122 – 26,122 0.0 (in thousands) No. of employees at year-end 3,111 3,676 4,212 4,396 4,653 4,879 + 4.9 No. of employees at year-end 1) Excl. Initial Public Offering (IPO) 2) Comparison with pro forma figure 3) The figures for total performance (HGB) and sales (US GAAP) for the business divisions are based on figures from the internal Management Information System. They differ slightly from the figures reported in the financial statements. 4) On tangible fixed assets and intangible assets 5) Provisions, liabilities and minority interests INDEX 94 ff. Accounting and 94 Consolidation, methods of valuation methods 98, 117 Consolidation, scope of 65 f., 86, 98 Acquisitions 67 Net indebtedness 46 ff., 49, 70 f., 86, 114 Ad Hoc Research 90, 101 Net interest income 117, 122 ff. Affiliated companies 30 ff., 33, 69 f., 86 Non-Food Tracking 99, 118, 125 Associated companies 68 ff., 85 f. Operating income 66, 91, 114 f. Balance sheet 68 Organic growth 68 ff., 85 f., 103, 114 Balance sheet, notes to 82, 85 Organization and 67, 92, C3 Cash flow from ongoing administration business activity 65, 90 Other operating 67, C3 Free cash flow expenses 114 f. Consolidated financial 65, 90 Other operating income statements 111, 116 Other provisions 65, 90, C3 Consolidated total 114 f. Pro forma statement income before minority interests 110 Proposed appropriation of profits 67, 92 Consolidated funds statement 110 Provisions 22 ff., 25, 68, 85 Consumer Tracking 82, 85 Purchasing 113 Contingencies 72 ff., 114 Regions 4, 34, 85, 121 Corporate Governance 78, 85 Research and development 66, 91 Current assets 65 f. Result from ongoing 94 Currency conversion business activity 66, 91, 101 f. Deferred taxes 76 ff. Risk report 56, 110, C3 Dividend 64, 90, 92, 112 Sales 53, 80, 95, 103, C3 Earnings per share 114 Segment reporting 65, 85, 90, C3 EBIT 66, 91, 93, 108 ff., C3 Shareholders’ equity 65, 85, 90, C3 EBIT after income from 66, 91, C3 Equity ratio participations C3 RoE 65, C3 EBITDA 54 f. Shareholder structure 65, 85, 90 C3 EBITDA after income from participations 122 ff. Shareholdings 65, 85, 90, C3 EBIT margin 52 ff. Share price performance 80 ff., 85, 118, C3 Employees 52 ff., 90, 95, Shares, earnings per 103, C3 67, 84 Financing 67 Soft facts 66, 91, 104 f. Fixed assets 56, 95, 109 Stock options 95, 104 Goodwill 1, 85 f. Strategy 65, 90, 100, C3 Net income from participations 2 ff., 119 ff. Supervisory Board 65, 90 Income statement 65, 90, 101 f. Taxes on income and earnings 100 ff. Income statement, notes to 66, 91 Total assets 57 Investor Relations 67 f., 84, C3 Investment 58 f, 82, 121 Management Board Margin, see EBIT margin 38 ff., 43, 70, 86 Media P R O V I S I O N A L K E Y D AT E S IN THE FINANCIAL CALENDAR 30 April 2003 Accounts press conference, Nuremberg 30 April 2003 Analysts’ conference, Frankfurt/Main 27 May 2003 Quarterly report as at 31 March* 13 June 2003 Annual General Meeting, Nuremberg 27 August 2003 Interim report as at 30 June* 26 November 2003 Quarterly report as at 30 September* 26 February 2004 Provisional result for financial year 2003 22 April 2004 Accounts press conference, Nuremberg 22 April 2004 Analysts’ conference, Frankfurt/Main 27 May 2004 Quarterly report as at 31 March* 15 June 2004 Annual General Meeting, Nuremberg 26 August 2004 Interim report as at 30 June* 25 November 2004 Quarterly report as at 30 September* * Publication is scheduled for before the start of the trading session MISSION STATEMENT GfK. 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