GfK sees weak end to 2008 as it misses organic growth target

GERMANY-- A weak end to 2008 saw GfK miss its 6% organic growth target for the year by half a percent, with sales coming in at €1.2bn.

However, the global research group did meet its goal of a 13% margin as adjusted operating income increased slightly to €159m.

In preliminary figures out today, GfK reported growth across all its sectors, but the retail and technology arm was by far the star performer, with sales up 16.6% to €304m and income increasing 22.6% to €82m.

Custom research grew sales 1.3% to €783m, but income was down €10m to €56m as the UK and US healthcare business continued to struggle and cash-strapped automotive clients cut back on spending. Looking ahead to next year, GfK said the previously announced restructuring of its healthcare business was set to generate “significant cost savings”.

The agency's third main business line, media research, posted a 4.5% increase in sales to €130m but income was down marginally, from €25.7m in 2007 to €24m in 2008, as investments were made in “special production and analysis software”.

Growth by region was as expected: the agency saw double-digit rises in the developing markets of Central and Eastern Europe (19.3%), Latin America (32.7) and Asia Pacific (47.3), with sales up 8.9% in its home market of Germany and a rise of 1.4% in the Western Europe, Middle East and Africa region. Sales were down 8.7% in North America, with over two-thirds of the decline due to the falling value of the Euro against the dollar.

Summing up, GfK said 2008 had been “economically challenging” but that its organic growth had been “sound”. It is aiming for organic sales growth this year as well, though it anticipates “increased price pressure” from clients, and its order book already reflects the deteriorating economic environment – with only 30.2% of expected annual sales booked at the end of January, compared with 33.7% at the same time last year.

Key to the agency's plan to sustain sales growth and margin through the downturn is the ‘BISS' initiative, through which the agency will look to introduce new technology to drive new services and to save costs through the consolidation of IT functions and office locations.

BISS is expected to add €30m to income from 2012 onwards, with 30% of the savings coming through in 2009, 60% in 2010 and 90% in 2011. Costs associated with the programme will be in the region of €40m, spread over three years.

GfK will publish detailed financial results for 2008 on 31 March.

Author: Brian Tarran

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