Interim report January - March 2001

Interim report January - March 2001 Observer AB (publ) Continued streamlining and international expansion * The group's operating revenue rose to SEK 311.7 million (278.7). Organic growth was 13 percent in local currency. The Nordic market reported organic growth of 20 percent. * Operating profit before goodwill amortization and items affecting comparability amounted to SEK 59.5 million (72.8). In the corresponding period of 2000 operating profit, excluding divested units, was SEK 66.2 million. The operating margin amounted to 19.1 percent (26.1). * German and UK operations had a negative impact on earnings due to the media's focus on issues of lesser interest to Observer's clients. * Profit per share after tax and full dilution, excluding goodwill amortization and items affecting comparability, amounted to SEK 0.75 (0.72) * Efforts to expand geographically are continuing, and Observer's financial position is strong, which facilitates a further expansion through acquisitions. Comment by Observer CEO Robert Lundberg "Reports on foot and mouth disease and related issues during the period limited the media's coverage of issues of relevance to Observer's clients. This had an adverse effect on growth and has affected the earnings, particularly in Germany and the UK." "Underlying demand remains good. Development in the Nordic countries is positive." Highlights during the period * Portugal's leader in media and market monitoring, Memorandum SA, was acquired in early March. * Ireland's leader in the industry, News Extracts, was also acquired during the period. * Observer divested its interest in the jointly owned associated company SMG Consulting. * A special marketing unit for multinational clients has been established in London. Highlights following the conclusion of the period * Observer's principal shareholder, Bure Equity AB, has distributed its entire holding in Observer to its shareholders. The decision will give Observer around 20,000 new shareholders. * An extraordinary general meeting of the shareholders of Observer AB on April 25 voted to combine the company's Class A and B shares into a single class with equal voting rights. The conversion to one class of shares will take effect no earlier than July 31, 2001. * The company has decided to reschedule the Annual General Meeting in order to give the shareholders added through Bure's distribution the opportunity to attend the meeting. Observer AB will hold the Annual General Meeting on May 28. Structure 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. The Communications 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 evaluating communication activities. Operations are conducted in the UK, Sweden, Finland, Denmark and Germany. Market Globalization, increasing information flows and rapid technological developments are giving businesses and organizations more reason to monitor industry and social developments. At the same time communication needs in PR and IR and the necessity of evaluating communication results are growing as well. During the first quarter of 2001 demand for Media Intelligence services remained good, with no significant signs of a slowdown. Reports on foot and mouth disease, mad cow disease and related issues regarding food quality and animal husbandry has limited the media's coverage of news relevant to Observer's clients. This had an adverse effect on growth, particularly in Germany and the UK. The Nordic markets have been affected to a lesser extent and are reporting good growth. The market for value-added services remains good, and demand for international client solutions is growing. In the Communications division, market growth was slightly lower in the first quarter compared with the corresponding period of the previous year, but remains good. The early part of 2000 was distinguished by a high level of activity and communication, especially in technology and Internet-related activities. Revenue Operating revenue amounted to SEK 311.7 million (278.7), of which Media Intelligence accounted for SEK 249.5 million and Communications for SEK 65.6 million. Organic growth in local currency was 13 percent. The Nordic countries achieved growth of 20 percent, while the UK and Germany together reached 5 percent. In the Nordic countries, value-added services accounted for 38 percent (34) of Media Intelligence's revenue, while in the UK and Germany the share was 5 percent (3). In the British portion of the Communications division, selection and database building services reported higher growth than the corresponding period of the previous year. On the other hand, growth in the distribution of business information was lower than the corresponding previuos period. Profit The group's operating profit before goodwill amortization and items affecting comparability amounted to SEK 59.5 million (72.8). The corresponding result a year earlier, excluding divested units, was SEK 66.2 million. The operating margin amounted to 19.1 percent (26.1). The Media Intelligence division reported an operating margin of 18.6 percent (22.9) and the Communications division 24.5 percent (37.8). In the British portion of the Media Intelligence division, a large number of planned integration and development projects are under way. Expenses for extensive investments in modern IT support, the expansion of the sales and marketing organization, and the establishment of an organization for editorial and analytical services are, according to previous notification, lowering operating margins. In December 2000 a new group-wide production system was introduced in the UK. The change affects over 200 people and has, as expected, temporarily reduced production volumes and thus adversely impacted the operating margin. With a large part of its operations in broadcast media, the unfavorable news flow has substantially reduced Observer Germany's earnings. Observer is therefore undertaking a series of measures in Germany to increase marketing and sales activities. Good growth in the Nordic countries has resulted in improved profit and a higher operating margin. For the Communications division, the lower growth rate during the period, together with higher development and expansions costs, has temporarily led to lower operating margins. During the quarter the division started operations in Germany. The group's investments to develop IT solutions and new services and markets have remained significant. The aim of the development projects is to maintain high organic growth, add additional value to client offerings and facilitate a continued international expansion. Net financial income and expenses was adversely affected by SEK -3.3 million by the writedown of the shareholding in Jupiter Media Metrix to its current market value and a provision to cover Observer's share of the loss by Media Metrix Europe. Net financial income and expenses includes positive exchange rate effects of SEK 6.6 million. Profit for the period after tax amounted to SEK 21.0 million (390.6). Profit for the first quarter of 2000 included total 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 0.75 (0.72). Growth and profit objective Observer's objective is to achieve annual organic growth of at least 10- 15 percent. In addition, it will expand through acquisitions. The group will achieve an average 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 options' value when they are exercised. Allocation to social contributions are charged against earnings as incurred and amounted during the period to SEK 0,3 mn. Financial position Apart from high organic growth, Observer's growth strategy is based on acquisitions in new geographic markets. Acquisitions of companies with strong market positions result in substantial goodwill. The total goodwill item on the balance sheet amounts to SEK 1,735.3 million (1,634.6). Shareholders' equity amounted to SEK 1,637.1 million (1,462.9) at the end of the period, or SEK 29.49 per share (26.35). The debt/equity ratio was 14 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. The company had 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 the English-speaking part of Europe and can utilize synergies within the British portion of the group. News Extracts has a turnover of approximately SEK 17 million and is consolidated as of March 31. Observer has sold its interest in the jointly owned management and strategic consultant SMG Consulting. The change in ownership took effect on March 31, and SMG is reported during the period as an associated company. Outlook The intense media coverage of foot and mouth disease and related issues is expected to gradually subside, which should result in a more normal news flow. The long-term prospects of continued positive market development for Observer's services are good. Slightly lower client demand due to a growing economic slowdown cannot be excluded, however. Efforts to expand geographically are continuing, and Observer's financial position is strong, which facilitates a continued expansion through acquisitions. Stockholm, May 10, 2001 Robert Lundberg President and CEO Annual General Meeting and financial report schedule 2001 May 28 Annual General Meeting August 16 Interim report January-June October 25 Interim report January-September For further information, please contact: Robert Lundberg, President and CEO, telephone +46 8 507 410 10, e-mail robert.lundberg@observergroup.com Jan-Erik Jansson, Chief Financial Officer, telephone +46 8 507 410 14, e- mail jan-erik.jansson@observergroup.com Per Blixt, Chief Communications Officer, telephone +46 8 507 410 12/+46 70 549 28 08, e-mail per.blixt@observergroup.com Further comments on the interim report will be provided at a telephone conference with Observers AB's management at 3:00 p.m. on May 10. To participate, please phone +46 8 600 53 81 and use code 630024. ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2001/05/10/20010510BIT00730/bit0003.doc Full Report http://www.bit.se/bitonline/2001/05/10/20010510BIT00730/bit0003.pdf Full Report