Interim report January - June 2001

Interim report January - June 2001 Observer continues to generate good organic growth and expects additional acquisitions during the second half of the year · The group's operating revenue rose to SEK 631.3 million (552.8). Organic growth in local currency was 11 percent (21). The Nordic countries achieved corresponding growth of 16 percent. · Operating profit before goodwill amortization and items affecting comparability amounted to SEK 108.3 million (130.5). In the corresponding period of 2000 operating profit, excluding divested units, was SEK 122.6 million. The operating margin was 17.2 percent (23.6). · The economic slowdown in Europe during the spring resulted in a weaker news flow, which reduced Observer's growth rate and led to lower profit compared with the corresponding period of 2000. To adapt capacity to market conditions, measures are being taken to reduce costs by SEK 80 million on an annual basis. The measures will have full effect by year- end. · Profit per share after tax and full dilution, excluding goodwill amortization and items affecting comparability, amounted to SEK 1.21 (1.35). · Observer's international expansion is continuing. Portugal and Ireland's leaders in media and market monitoring were acquired during the spring. In the Communication Tools division, the News Online group with operations in Sweden and Norway, was acquired. · Comment by Observer CEO Robert Lundberg "The economic slowdown, together with the effects of the intensive media coverage of foot and mouth disease at the beginning of the year, has resulted in a weaker news flow, which has led to a lower growth rate and lower earnings. An improvement took place during the summer, which, together with the cost cuts now being implemented, gives us reason to be cautiously optimistic about Observer's future development. I also expect we will be able to continue to expand geographically through additional acquisitions as early as this year." Highlights during the period · A special marketing unit for multinational clients was established in London. · Observer divested its interest in the jointly owned associated company SMG Consulting. · Observer's principal shareholder, Bure Equity AB, distributed its entire holding in Observer to its shareholders. Observer has now around 20,000 new shareholders which brings the total to slightly over 30,000 shareholders. · All former company names in the Communication Tools division are marketed as of June under the Waymaker name. Highlights following the conclusion of the period · As of August 13 Observer's shares on Stockholmsbörsen are traded in a single class. Market Long-term prospects for Observer's services are good. Globalization, a growing information flow and rapid technological developments are giving businesses and organizations ever more reason to monitor industry and social developments. At the same time there is a growing need to further improve PR and IR communication and evaluate communication results. Media Intelligence The massive media focus on foot and mouth disease and related issues at the beginning of the report period limited coverage of news relevant to Observer's clients. In addition, generally lower economic activity in our markets has resulted in a weaker news flow and increased cost consciousness among our clients, which has reduced our growth rate. The market for value-added services, particularly analytical services, has been good. Interest in international client solutions remains favorable. Communication Tools In the Communication Tools division, market growth was lower than in the corresponding period last year, but remains good. During the first half of 2001 IR and PR activity among our clients declined, in contrast with the previous year, which was notable for its high communication level, particularly among technology and Internet businesses. Revenue Operating revenue amounted to SEK 631.3 million (552.8), of which Media Intelligence accounted for SEK 500.4 million and Communication Tools for SEK 137.6 million. Organic growth in local currency was 11 percent. The Nordic countries achieved growth of 16 percent, while the UK and Germany together reached 4 percent. During the second quarter organic growth in local currency was 9 percent. In the Nordic countries, value-added services accounted for 38 percent (35) of Media Intelligence's revenue, while in the UK and Germany the share was 4 percent (3). In the British portion of the Communication Tools division, selection and database building services achieved higher growth than the corresponding period of 2000, while growth in business information distribution was lower. Profit The group's operating profit before goodwill amortization and items affecting comparability amounted to SEK 108.3 million (130.5). The corresponding result a year earlier, excluding divested units, was SEK 122.6 million. The operating margin amounted to 17.2 percent (23.6). The Media Intelligence division reached an operating margin of 15.6 percent (21.1) and the Communication Tools division reached an operating margin of 27.8 percent (37.5). Operating profit for the second quarter amounted to SEK 48.8 million. The corresponding year-earlier result, excluding divested units, was SEK 56.4 million. As planned and earlier announced, the British portion of the Media Intelligence division is implementing a number of integration and development projects to raise its growth rate. In December 2000 a new group-wide production system was introduced in the UK. The change involves over 200 people and, as expected, has temporarily affected productivity and operating margins. Since the end of the second quarter productivity has gradually improved. After being significantly affected by the media's focus on foot and mouth disease at the beginning of the year, the German operations noted higher growth and profit during the summer. The Nordic countries are reporting continued good growth, although the economic slowdown and weaker news flow have led to a slightly lower growth rate. For the Communication Tools division, the lower growth rate during the period, together with higher development and expansion costs, has reduced the operating margins. During the first quarter the division started operations in Germany. The Group's investments to develop IT solutions, new services and new markets have remained significant. The aim of the development projects is to ensure high organic growth, add value to client offerings and facilitate a continued international expansion. To adjust to a temporarily lower growth rate, the group is reducing its costs while at the same time increasing sales and marketing activities. The cost reductions and priority given to development projects are expected to cut costs by the equivalent of SEK 80 million on an annual basis. The measures will have their full effect by year-end. Net financial income and expenses was adversely affected by SEK 4.7 million by the writedown of the shareholding in Jupiter Media Metrix to its current market value. Net financial income and expenses also includes exchange rate effects of SEK 3.1 million and a net interest expense of SEK 10.3 million. Profit for the period after tax amounted to SEK 22.1 million (416.5). Profit for the corresponding period of 2000 included aggregate capital gains of SEK 384 million on the divestments of the Sifo Research & Consulting division and Sifo Interactive Media. Profit per share after tax and full dilution, excluding goodwill amortization and items affecting comparability, amounted to SEK 1.21 (1.35). Growth and profit objective Observer's long-term financial objective remains unchanged. The objective is to maintain annual organic growth of at least 10-15 percent. In addition, expansion will be achieved through acquisitions. The group will achieve a long-term operating margin before goodwill amortization and items affecting comparability of 22 percent. Acquisitions of companies with low margins and special investments may temporarily result in a lower operating margin, however. Option program In February a decision was made to introduce a stock option program for all employees of the Observer group. In several countries, social security contributions are payable on the appreciation in the value of the options when they are exercised. Provisions for social security contributions are charged against earnings as incurred. Due to the performance of the Observer share, a previous allocation of SEK 0.3 million has been reversed. Financial position In addition to high organic growth, Observer's growth strategy is based on acquisitions in new geographic markets. Acquisitions of companies with strong market positions lead to substantial goodwill. The total goodwill item on the balance sheet amounts to SEK 1,812.1 million (1,599.0). Shareholders' equity amounted to SEK 1,645.1 million (1,438.4) at the end of the period, or SEK 29.64 per share (25.91). The debt/equity ratio was 20 percent (6). Observer's financial position is very good, facilitating a continued expansion through acquisitions. Accounting principles The accounting and valuation methods used to prepare the interim report are the same as those applied in the annual report 2000. The interim report has been prepared in compliance with the Swedish Financial Accounting Standards Council's recommendation RR 20 on Interim Financial Reporting. Acquisitions/divestments In early March Observer acquired Portugal's leader in media and market monitoring, Memorandum SA. Memorandum is a sophisticated, modern company with an extensive network of partners in Latin America and Spain. It reported a turnover of approximately SEK 20 million in 2000 and is consolidated as of March 2001. During the period Observer also acquired Ireland's leader in the industry. With the acquisition of News Extracts, Observer now covers all of English-speaking Europe and can take advantage of synergies within the British portion of the group. News Extracts had a turnover of approximately SEK 17 million in 2000 and is consolidated as of March 31, 2001. In May Observer acquired the News Online group, the market leader in Sweden and Norway in Nordic media data. Its information is available in the form of online databases, CD-ROM's and printed publications. The group reported a turnover of approximately SEK 22 million in 2000. The News Online companies were integrated into the Communication Tools division in May. Observer sold its interest in the jointly owned management and strategic consultant SMG Consulting. The change in ownership took effect on March 31. Outlook Long-term prospects for continued positive development for Observer's services are considered good. Slower economic activity and a weaker news flow have temporarily affected the industry's growth, however. Expectations are that Observer will continue to grow faster than the underlying market and maintain long-term organic growth of 10-15 percent a year. Efforts to also expand geographically are continuing, and Observer's financial position is strong, which will facilitate further acquisitions. With the help of cost cuts, among other things, Observer hopes to return as quickly as possible to a profit level that meets its objective of an operating margin before goodwill amortization and items affecting comparability of 22 percent. Stockholm, August 16, 2001 Robert Lundberg President and CEO Observer AB Observer's operations are divided into two divisions. The Media Intelligence division is active in Business and Communication Intelligence and offers market monitoring and communication evaluations. It currently operates in the UK, Sweden, Germany, Norway, Finland, Denmark, Portugal, Ireland, Estonia, Latvia and Lithuania. A special marketing unit for multinational clients has been established in London. The Communication Tools division offers communication tools for clients primarily in IR and PR. The division builds databases with information on strategically important target groups in the media and financial world. Clients are also offered tools and channels for distributing and publishing business information and evaluation communication activities. Operations are conducted in the UK, Sweden, Finland, Denmark, Germany and Norway. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/08/16/20010816BIT00950/bit0002.doc The full report http://www.waymaker.net/bitonline/2001/08/16/20010816BIT00950/bit0002.pdf The full report