Year-end report for 2000 Observer AB

Year-end report for 2000 Observer AB High organic growth and increased operating margin for full-year 2000. The year ended with yet an other strong quarter. · Operating profit before goodwill amortization and items affecting comparability amounted to SEK 270.5 million (134.5). For comparable units, profit improved by 24 percent from the previous year. The operating margin was 23.8 percent (12.3). · Profit after tax amounted to SEK 461.8 million (50.9). · Profit per share after tax and full dilution, excluding goodwill amortization and items affecting comparability, increased by 62 percent to SEK 2.95 (1.82). · The group's operating revenue rose to SEK 1,135.4 million (1,096.3). Organic growth was 20 percent in local currency. · Observer's financial position is very strong, facilitating a continued expansion through acquisitions. · The Board of Directors has recommended that the dividend per share be raised by 29 percent to SEK 0.45 (0.35). Structure Observer's core operations are separated into two divisions. The Media Intelligence division offers media and market monitoring, communication evaluations and analysis. For the time being the division has operations in the UK, Sweden, Germany, Norway, Finland, Denmark, Estonia, Latvia and Lithuania. The Communications division offers clients, primarily in IR and PR, databases of who's who in the media and financial worlds. Clients are also provided communication solutions for distributing business information via various electronic channels including the Internet. The division was established during the year to increase the focus on growth and internationalization in this area. The division operates in the UK under the name Media Information and in Sweden, Finland and Denmark as BIT. Operations are being established in Germany in the spring of 2001. The name change from Sifo Group AB to Observer AB, as approved by the Annual General Meeting in May 2000, is a result of the divestment of the Sifo Research & Consulting division. Romeike Group Romeike Group, the UK's largest and Europe's second largest company in traditional media monitoring, was acquired in December 1999. In 2000 Observer implemented a large number of integration and development projects in the UK. Major investments were made in new production systems, sophisticated IT support, the expansion of the sales and marketing organization and the introduction of new value-added services. Romeike Media Intelligence has been integrated in the Media Intelligence division and Media Information in the Communications division whereas a small part of the operations has been divested. The intensive changes have been combined with increased market activity. Observer's new product offerings in the UK have been very positively received. Growth has been higher than expected and the operating margin remains high. In December 2000 a new production system used jointly within the group was introduced by Romeike Media Intelligence. The change affects around 200 people and is expected to result in slightly lower production volumes at the start of 2001. Market Globalization, a rising volume of information and rapid technological developments are giving businesses and organizations more reason to monitor market and social developments. At the same time there is a growing need to communicate with the market and evaluate communication results. Demand for Media Intelligence services has been good, with an upward trend for all value-added services. The market for Observer's Media Intelligence services is developing quickly, with an increasing number of market monitoring firms specializing in Internet and media analysis. Companies with a platform in information technology are trying with varying degrees of success to gain a foothold in the market. Observer's prospects of rising above the competition are good. It can meet and develop the needs of both new and current clients and grow faster than the market as a whole. An extensive client base, with around 30,000 clients in Europe, and a strong financial position enable Observer to actively develop new services. Furthermore, as an international company it can exploit growing demand for global services. Increased communication needs in PR and IR and the introduction of new services are the basis for market growth for the Communications division. This operating area also has the opportunity to expand to new geographic markets and achieve economies of scale. Revenue Operating revenue amounted to SEK 1,135.4 million (1,096.3), of which Media Intelligence accounted for SEK 875.1 million and Communications for SEK 210.8 million. In the core operations, organic growth in local currency was 20 percent. Germany, Finland, Denmark and the Baltic states posted growth in excess of 22 percent in local currency. Sweden and Norway reported organic growth of 19 respective 18 percent, while in the UK the comparable figure was 13 percent. Media Intelligence's value-added services, excluding the UK operations, accounted for 28 percent (25) of revenue. Profit The group's operating profit before goodwill amortization and items affecting comparability rose to SEK 270.5 million (134.5). The operating margin was 23.8 percent (12.3). The Media Intelligence division's operating margin was 23.4 percent and the Communications division's 32.1 percent. For comparable units, profit rose by 24 percent compared with the previous year. Investments to develop IT solutions, new services and new markets remained significant. The aim of Observer's development projects is to maintain high organic growth, add additional value to client offerings and facilitate a continued international expansion. Among a large number of projects that were undertaken in 2000 were the further development of a service package designed for international clients and a joint IT platform for production and delivery systems. The profit trend was favorable in all countries. After a slightly downward trend during the first six months of 2000, growth and profit margins in the Swedish operations returned to previous levels later in the year. The operating margin in the UK remains high. The efforts to further improve growth will require higher expenses and mean a slight decline in the operating margin. Capital gains amounted to SEK 383.8 million (0), of which the sale of Sifo Research & Consulting accounted for SEK 335.0 million and Sifo Interactive Media for SEK 48.8 million. The stockholdings in Nasdaq-listed Jupiter Media Metrix have been written down to their current market value. The writedown has charged the financial net with SEK -6.5 million. The financial net was affected by a SEK -6.5 million writedown of the shares in Nasdaq-listed Jupiter Media Metrix to their current market value. Profit for the year after tax amounted to SEK 461.8 million (50.9). Profit per share after tax and full dilution, excluding goodwill amortization and items affecting comparability, rose to SEK 2.95 (1.82). Profit per share after tax and full dilution was SEK 8.37 (1.12) Surplus insurance funds The discounted present value of the surplus insurance refund from the Swedish pension insurance company Alecta (formerly SPP) is SEK 14.8 million. This amount has been taken up in revenue as an item affecting comparability. 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. With organic growth of 20 percent and an operating margin of 23.8 percent for the full-year 2000, the objectives were successfully met. Financial position As part of the financing for the acquisition of Romeike Group, a rights issue was implemented in January 2000. The issue proceeds of SEK 825 million were used in their entirety to repay loans. During the year the group received SEK 600 million as the sales proceeds for the Sifo Research & Consulting division. Apart from high organic growth, Observer's growth strategy is based on acquisitions in new geographic markets. The industry's emphasis on knowledge-intensive services and acquisitions of companies with strong market positions results in substantial goodwill. The total goodwill item in the balance sheet amounts to SEK 1,604.6 million (1,708.0). Shareholders' equity amounted to SEK 1,562.9 million (240.3) at year-end, or SEK 28.16 per share (5.38). The debt/equity ratio was 7 percent (615). All the companies are generating good cash flow. Observer's financial position is very good, facilitating a continued expansion through acquisitions. Acquisitions/divestments Sifo Research & Consulting was sold as of January 1, 2000 to Research International/WPP. The purchase price amounted to SEK 600 million. During the year Observer also sold the subsidiary Sifo Interactive Media in return for eight percent of the shares in MMXI Europe, 52,000 shares in Media Metrix USA (now Jupiter Media Metrix) and approximately SEK 44 million in cash. The company is active in Internet measurements. At the beginning of the year an additional 30 percent of Argus Media in Germany was acquired. Argus Media has been merged with Observer RTV Medienauswertungen. The group's ownership interest in the combined Observer Argus Media now amounts to 86 percent. During the year Observer complemented its Norwegian operations by acquiring Imedia Norge from Schibsted and Telenor. Imedia has a turnover of approximately NOK 25 million. Its operations have been integrated with Observer Norway. The takeover was effective June 1. On September 1 Observer sold a small part of its UK operations, Hollis Directories. As a result, the British operations have also been concentrated on Media Intelligence and Communications. Hollis has a turnover of approximately GBP 2 million on an annual basis. The purchase price amounted to GBP 3.6 million and produced no capital gain. Dividend The Board of Directors and the President are recommending that the dividend be raised to SEK 0.45 (0.35) per share. Outlook Historically, Observer has been relatively unaffected by economic fluctuations. Current indications of weaker economic growth will not lead to any adjustments in the company's financial objectives. The work involved in the geographic expansion of the Observer group activities continues according to plan. Stockholm February 20, 2001 Observer AB The Board of Directors and the President Financial report schedule May 10 Interim report January-March/Annual General Meeting August 16Interim 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, Senior VP Corporate Communications, telephone +46 8 507 410 12/ +46 70 549 28 08, e-mail per.blixt@observergroup.com Further comments on the year-end report will be provided at a telephone conference with Observers AB's management at 3:00 p.m. (CET) February 20. 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/2001/02/20/20010220BIT01140/bit0001.doc http://www.bit.se/bitonline/2001/02/20/20010220BIT01140/bit0001.pdf