Interim report January - March 2002

Interim report January - March 2002 Significantly improved operating margin during first quarter. Fully subscribed share issue provides the company with approximately SEK 400 million for further expansion * The group's operating revenue rose to SEK 450.1 million (311.7), an increase of 44 percent. Organic growth in local currency was -2 percent (13). * Operating profit before goodwill amortization and items affecting comparability rose to SEK 97.1 million (59.5). The operating margin improved to 21.6 percent (19.1). In the fourth quarter of 2001, the operating margin was 17.5 percent. * Profit per share after tax and full dilution, excluding goodwill amortization and items affecting comparability, amounted to SEK 1.01 (0.75). * The integration of recently acquired Bacon's is progressing well. The acquisition, which took place in late 2001, established Observer in the key U.S. market and strengthens its global offering. * To better financially prepare Observer for further expansion, a new share issue with preferential rights for current shareholders was floated in April. The issue, which was fully subscribed, provided the company with proceeds of approximately SEK 400 million. Comment by Observer CEO Robert Lundberg "Our focus on operating margins has produced results. Even though the year's first quarter normally is stronger than the second and third quarter we note a clear improvement compared to the same period of the previous year. The successful share issue has prepared us well for further international acquisitions. During the latter part of 2002, I also expect to see a rebound in organic growth." Market A number of underlying trends indicate good long-term prospects for Observer's services. Globalization, growing information flows and rapid technological developments are giving businesses and organizations more reason than ever to monitor developments in their industries and society. At the same time, there is a growing need to improve communication in Public Relations (PR) and Investor Relations (IR) and evaluate the results of communication activities. Media Intelligence During the winter, the weak economy and global political events continued to affect the market negatively. The flow of relevant business news has been weak, and media coverage has diminished due to declining advertising spending. Weak economic development has also led to lower PR and IR activity. Under current market conditions it is essential to have strong market positions, considerable economies of scale, a broad range of services and an international market presence in order to maintain growth and good margins. The market for value-added services, particularly analytical services, remains good. Communication Tools The market for Communication Tools' services continues to grow, although market growth was lower than in the corresponding period of the previous year. In this area as well, lower IR and PR activity has adversely affected growth. Due to less client activity, the number of projects in the Publish (distribution) area has declined. In the Select (database) area, revenue has been stable, as it is based on annual subscriptions. Growth in the number of clients was lower, however. Revenue Operating revenue amounted to SEK 450.1 million (311.7), an increase of 44 percent. Of this total, Media Intelligence accounted for SEK 336.4 million (249.5) and Communication Tools SEK 119.4 million (65.6). For the period, organic growth in local currency was -2 percent. Easter weekend, which fell mainly in March, adversely affected organic growth by an estimated 2 percentage points. Compared to a strong first quarter in the previous year, organic growth in the Nordic countries was -8 percent, while the rest of Europe together reached 4 percent. In the Nordic countries, value-added services accounted for 38 percent (38) of Media Intelligence's revenue, while in the UK and Germany the share was 8 percent (5). Profit The group's operating profit before goodwill amortization and items affecting comparability amounted to SEK 97.1 million (59.5). Operating profit was charged during the period with SEK 3.3 million for integration costs in the U.S. The operating margin rose to 21.6 percent (19.1). The Media Intelligence division reached an operating margin of 20.7 percent (18.6) and Communication Tools 33.5 percent (24.5). The previously announced cost savings program has been completed and the measures are reducing costs by more than SEK 80 million on an annual basis. As a result of the cost reductions, the Nordic operations are maintaining good operating margins despite negative growth. In the UK and Germany, operating margins have improved substantially compared to the corresponding period of the previous year. Net financial income and expenses amounted to SEK -17.1 million (-2.0), which includes a net interest expense of SEK -21.7 million, a writedown in the value of Observer's shares in Jupiter Media Metrix of SEK -5.6 million, a reversal of reserves of SEK 4.7 million and exchange rate effects of SEK 5.5 million. The book value of Observer's holding in Jupiter Media Metrix amounts to SEK 0.1 million following the write- down. Profit after tax for the period amounted to SEK 17.2 million (21.0). Profit per share after tax and full dilution, excluding goodwill amortization and items affecting comparability, amounted to SEK 1.01 (0.75). North America Recently acquired Bacon's of the U.S., which was consolidated as of December 1, 2001, has developed according to plan in terms of operations as well as of revenue and operating margin. The company is active in both Media Intelligence and Communication Tools and has a leading market position in the U.S. Bacon's has approximately 400 employees. The two Canadian companies acquired last autumn have been merged. Operations are now concentrated in one company and are developing according to plan. Efforts to integrate the U.S. and Canadian offerings and introduce Observer's entire range of services in North America have begun and are progressing well. 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 maintain 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 margin, however. Option program In February 2001, a decision was made to introduce a stock option program. In several countries, social security contributions are payable on the appreciation in the value of the options when exercised. Provisions for social security expenses on estimated benefits are expensed as they arise. Provisions during the period amount to SEK 0.1 million. 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 considerable goodwill. The total goodwill item on the balance sheet amounts to SEK 2,949.1 million. Since December 2001, goodwill has decreased by SEK 102.1 million, of which SEK 61.7 million consists of exchange rate effects. Shareholders' equity amounted to SEK 1,688.4 million (1,637.1) at the end of the period, or SEK 30.17 per share (29.49). The debt/equity ratio was 88 percent (14), an improvement of six percentage points since the beginning of the year. Following the new share issue, the pro forma debt/equity ratio is 52 percent. New share issue To better financially prepare Observer for further expansion, a new share issue with preferential rights for current shareholders was floated in April of this year. The issue provided the company with proceeds of approximately SEK 400 million and raised the number of shares by 11,194,276 to 67,165,658. First day of trading the new shares is expected to be May 22, 2002. Accounting principles The interim report has been prepared in compliance with recommendation RR 20 of the Swedish Financial Accounting Standards Council's on Interim Financial Reporting. Outlook Long-term development potential for Observer's services is good. 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 expand geographically are continuing as well. The cost base has been reduced, at the same time that the client offering has been expanded to include a number of new services. The expansion in North America creates the opportunity for attractive offerings for multinational clients. Market conditions are expected to improve during the second half of 2002, with higher organic growth as a result. The aim is to return as quickly as possible to an operating margin before goodwill amortization and items affecting comparability of 22 percent. Stockholm, May 2, 2002 Robert Lundberg President and CEO ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/05/02/20020502BIT00830/wkr0001.doc The full report http://www.waymaker.net/bitonline/2002/05/02/20020502BIT00830/wkr0002.pdf The full report