Interim report january - september 2001

Interim report January - September 2001 Improved operating margin during the third quarter. Two acquisitions in Canada - the first step into North America · The group's operating revenue rose to SEK 954.8 million (824.8). Organic growth in local currency was 9 percent (21). · Operating profit before goodwill amortization and items affecting comparability amounted to SEK 160.6 million (195.6). In the corresponding period of 2000 operating profit, excluding divested units, was SEK 186.5 million. The operating margin was 16.8 percent (23.7). · Despite the effects of the terrorist attacks in the U.S., the operating margin improved during the third quarter, to 16.2 percent, compared with 15.3 percent in the previous quarter. Immediately after September 11, the news was completely dominated by the occurrences in the U.S.A. The effect on Observer's operating profit is estimated at SEK 10-15 million. Media content has since become more diverse, and the negative effect has gradually subsided. · The previously announced program to adapt capacity to a lower growth rate has been carried out. The measures will take full effect at year-end and are expected to reduce costs by SEK 80 million on an annual basis. · Profit per share after tax and full dilution, excluding goodwill amortization and items affecting comparability, amounted to SEK 1.68 (2.08). · In August, Observer acquired Canada's two leading companies in media and market monitoring. The acquisitions are strategically important and serve as a platform for further expansion in North America. Portugal and Ireland's leaders in media and market monitoring were acquired during the spring. In the Communication Tools division, News Online group, with operations in Sweden and Norway, was acquired. · Comment by Observer CEO Robert Lundberg "Despite the terrorist attacks in the U.S., we have seen a trend toward improved operating margins during the third quarter compared with the previous quarter. We have carried out a program to reduce the group's expenses. The measures will have achieve their full effect by year-end. Most of the negative effects from September 11 are gradually subsiding. When news flows return to normal,Observer will be well-positioned." 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 former principal shareholder, Bure Equity AB, distributed its entire holding in Observer to its shareholders. Observer added around 20,000 new shareholders and now has 30,000 in all. · Since June, Waymaker is the joint trademark for the operations in the division Communication Tools. · As of August 13, Observer's shares on Stockholmsbörsen are traded in a single class. [REMOVED GRAPHICS] Market Long-term prospects for Observer's services are good. Globalization, growing information flows and rapid technological developments are giving businesses and organizations more reason than ever 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 market's development in 2001 has been affected by three factors: media reports on foot and mouth disease, which limited coverage of news relevant to Observer's clients; the economic slowdown, which has resulted in a weaker news flow and made clients more cost conscious; and the terrorist attacks in the U.S. on September 11, which initially completely dominated the media. Most of the negative effects of the events in the U.S. are gradually subsiding and media content is again becoming more diverse. Under current conditions, it is essential to have strong market positions, significant economies of scale, a broad range of services and an international market presence in order to maintain strong organic growth. The market for value-added services, particularly analytical services, remains good. Communication Tools In the Communication Tools division, market growth was lower than the corresponding period last year, but remains good. In 2001, IR and PR activity among our clients has declined. The early part of 2000 was notable for its high communication level, particularly among technology and Internet businesses. Immediately following the U.S. attacks, clients reduced their IR and PR activity, and the number of projects declined. As client activity returns to the level prior to September 11, the negative effects will subside. Revenue Operating revenue amounted to SEK 954.8 million (824.8), of which Media Intelligence accounted for SEK 763.1 million and Communication Tools for SEK 203.6 million. Organic growth in local currency was 9 percent. The Nordic countries achieved growth of 12 percent, while the UK and Germany together reached 6 percent. During the third quarter, organic growth in local currency was 6 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 5 percent (3). In the UK, the Communication Tools division's 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 160.6 million (195.6). The corresponding result in 2000, excluding divested units, was SEK 186.5 million. The operating margin amounted to 16.8 percent (23.7). The Media Intelligence division reached an operating margin of 15.4 percent (22.5) and Communication Tools 24.8 percent (33.7). Operating profit for the third quarter amounted to SEK 52.3 million. The corresponding year-earlier result, excluding divested units, was SEK 63.9 million. Despite an estimated earnings loss of SEK 10-15 million due to the terrorist attacks in the U.S., the operating margin improved during the third quarter, to 16.2 percent, compared with 15.3 percent in the previous quarter. Following the attacks, media content has gradually become more diverse, and the negative effect for Observer is subsiding. In the UK, the Media Intelligence division is implementing a number of planned integration and development projects to raise the growth rate. As expected, the extensive changes have affected productivity and operating margins. At the end of the second quarter, productivity gradually improved and operating margins rose. This trend was reinforced during the third quarter. After being affected by the media focus on foot and mouth disease at the start of the year, growth and profit in Germany improved during the third quarter. Print media monitoring is developing well for the German operations, while the area of broadcast media remains relatively weak. The Nordic countries are reporting continued good operating margins, 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 expansion costs, has reduced operating margins. Among other things, the division started operations in Denmark and 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. Net financial income and expenses was adversely affected by SEK 5.0 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 0.7 million and a net interest expense of SEK 20.9 million. Profit after tax for the period amounted to SEK 21.9 million (435.3). The figure for 2000 included capital gains on the divestments of the Sifo Research & Consulting division and Sifo Interactive Media as well as pension refunds totaling SEK 398.6 million. Profit per share after tax and full dilution, excluding goodwill amortization and items affecting comparability, amounted to SEK 1.68 (2.08). Cost reductions The previously announced program to adapt the Group's costs to a lower growth has been carried out. Cost cuts and a priority on development projects will reduce costs by the equivalent of SEK 80 million on an annual basis. The measures will take full effect at year-end. 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. During the period, no provisions were necessary. 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 2,112.0 million. Goodwill has increased by SEK 507 million during the year, of which SEK 161 million is due to exchange rate effects. Shareholders' equity amounted to SEK 1,700.9 million (1,527.4) at the end of the period, or SEK 30.64 per share (27.52). The debt/equity ratio was 37 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 August, Observer acquired two of Canada's leading companies in media and market monitoring. The acquisitions are Observer's first in North America. The Canadian operations, which generate a turnover of approximately SEK 165 million, are consolidated as of September 1. 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 part of the group. News Extracts had a turnover of approximately SEK 17 million in 2000 and is consolidated as of March 31, 2001. 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. 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 has 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 development potential for Observer's services are 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 also expand geographically are continuing. If global political unease continues to increase, Observer's short-term market prospects will worsen. Furthermore, even greater uncertainty now prevails regarding the time when a financial upturn can be expected. Development in the months prior to September 11 and the recovery since provide some basis for cautious optimism regarding Observer's development. With the help of cost cuts, 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, October 25 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, Canada, 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 evaluating communication activities. Operations are conducted in the UK, Sweden, Canada, 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/2001/10/25/20011025BIT01230/bit0002.doc The full report http://www.waymaker.net/bitonline/2001/10/25/20011025BIT01230/bit0002.pdf The full report