STOCKHOLM, Sweden, Feb. 19, 2002 (PRIMEZONE) -- Observer AB:
-- The group's operating revenue rose by 20 percent to SEK 1,358.7
million (1,135.4). Organic growth in local currency was
7 percent (20).
-- Operating profit before goodwill amortization and items
affecting comparability amounted to SEK 231.2 million (270.5).
The operating margin for the full-year 2001 was 17.0 percent
(23.8). In the fourth quarter, the operating margin rose to 17.5
percent, compared with 16.2 percent in the third quarter.
-- The previously announced cost-cutting program has been
completed. The measures will take full effect in 2002 and 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 2.42 (2.95).
-- The Board of Directors proposes a dividend of SEK 0.45
(0.45) per share.
-- In November, Observer acquired Bacon's Information, a U.S.
leader active in Media Intelligence and Communication Tools. The
entry into the key U.S. market strengthens Observer's global
offering. The integration of Bacon's is progressing according to
plan.
-- To better prepare Observer for further expansion, the Board of
Directors intends to propose a new share issue of approximately
SEK 400 million with preferential rights for current shareholders.
Comment by Observer CEO Robert Lundberg: "In a year in which the market performed weakly, Observer completed six acquisitions in four new markets. The acquisitions in North America have further strengthened our position as the market leader. Together with cost cuts and a stronger customer offering, we are well positioned for 2002. Our focus is now on further improving our operating margin, integrating the North American acquisitions and better preparing ourselves financially for a continued expansion."
Highlights of the Year
-- Observer completed six acquisitions in four new markets.
-- A special marketing unit for multinational clients was
established in London.
-- The interest in jointly owned SMG Consulting was divested.
-- Observer's former principal shareholder, Bure Equity AB,
distributed its entire holding in Observer to its shareholders.
-- All operations in the Communication Tools division are marketed
as of June under the Waymaker name.
-- Observer's shares on Stockholmsborsen are traded in a single
class as of August 2001.
Market
Long-term prospects for Observer's services are good. Globalization, increasing volumes of information 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 PR and IR communication and evaluate the results of communication activities.
Media Intelligence
The market's development in 2001 was affected by the media focus on foot and mouth disease during the spring and the U.S. terrorist attacks during the autumn, which limited coverage of news relevant to Observer's clients. Media content, which has since become more varied, did not return during the year to pre-September 11 conditions. Furthermore, the economic slowdown resulted in a weaker news flow and made clients more cautious.
Under current conditions, it is essential to have a strong market position, economies of scale, a broad range of services and an international market presence in order to maintain good 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, our clients' IR and PR activity slowed. The early part of 2000 was notable for its high level of communication activity, particularly among technology and Internet businesses.
Immediately after the U.S. attacks, clients reduced their IR and PR activity and the number of projects in the Publish (distribution) area declined. There has been some recovery thereafter.
In the Select (database) area, revenue was stable throughout the year, as it is based on annual subscriptions. Growth in the number of clients was lower, however.
Revenue
Operating revenue amounted to SEK 1,358.7 million (1,135.4), an increase of 20 percent. Of this total, Media Intelligence accounted for SEK 1,075.1 million and Communication Tools for SEK 301.5 million. For the full-year 2001, organic growth in local currency was 7 percent. The Nordic countries reported growth of 9 percent, while the UK and Germany together reached 5 percent. During the fourth quarter, organic growth in local currency was 2 percent.
In the Nordic countries, value-added services accounted for 38 percent (36) of Media Intelligence's revenue, while in the UK and Germany the share was 6 percent (3).
In the UK, the Communication Tools division's selection and database building services noted higher growth than the corresponding period of 2000, while growth in the distribution of business information was lower.
Profit
The group's operating profit before goodwill amortization and items affecting comparability amounted to SEK 231.2 million (270.5). The operating margin amounted to 17.0 percent (23.8). The Media Intelligence division reached an operating margin of 15.1 percent (23.4) and Communication Tools 26.6 percent (32.1).
Operating profit for the fourth quarter amounted to SEK 70.6 million (74.9). The operating margin for the fourth quarter rose to 17.5 percent, compared with 16.2 percent in the previous quarter.
In the UK, the Media Intelligence division completed as planned a number of integration and development projects designed to raise the growth rate. As previously announced, the extensive changes have adversely affected productivity and operating margins. During the second half of the year, productivity gradually improved and the operating margin ended the year in line with the long-term objective for the unit.
After being affected at the start of the year by the media focus on foot and mouth disease, growth and profit in Germany improved. Print media monitoring is developing well for the German operations, while broadcast media remains weak.
The Nordic countries are reporting continued good operating margins, although the economic slowdown and weaker news flow have led to a slower growth rate.
For the Communication Tools division, the lower growth rate during the period, together with expansion costs, reduced its operating margin, which still amounted to 26.6 percent.
The Group's investments in 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 amounted to SEK -39.3 million (-35.6), which includes a writedown of SEK 4.5 million in the value of Observer's shares in Jupiter Media Metrix to current market value. Jupiter Media Metrix is the target of a takeover offer which, if completed, would include Observer's interest in Jupiter Media Metrix Europe. Net financial income and expenses also includes exchange rate effects of SEK 0.5 million and a net interest expense of SEK 35.5 million.
Profit after tax for the period amounted to SEK 29.4 million (461.8). The figure for 2000 included capital gains on the divestments of the Sifo Research & Consulting division and Sifo Interactive Media and pension insurance refunds totaling SEK 398.6 million.
Profit per share after tax and full dilution, excluding goodwill amortization and items affecting comparability, amounted to SEK 2.42 (2.95).
North America
Recently acquired Bacon's of the U.S. is consolidated as of December 1 and has developed according to plan. 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 coordinate the U.S. and Canadian offerings and introduce Observer's entire range of services have begun and are progressing well.
Cost Reductions
The previously announced program to lower group costs has been completed. Cost cuts and a priority focus on development projects will reduce costs by the equivalent of SEK 80 million on an annual basis. The measures will take full effect in 2002. The costs to implement the program were charged against operating profit during the second half of the year.
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. No provisions were allocated during the period.
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 3,051.2 million. Goodwill increased by SEK 1,446.6 million during the year, of which SEK 169 million is due to exchange rate effects. Shareholders' equity amounted to SEK 1,681.1 million (1,562.9) at the end of the period, or SEK 30.25 per share (28.16). The debt/equity ratio was 94 percent (7).
To better prepare Observer for further expansion, organically and through acquisitions, the Board of Directors intends to propose a new share issue with preferential rights for current shareholders. The new issue is expected to provide the company with proceeds of approximately SEK 400 million. Following the new issue, the pro forma debt/equity ratio as per December 31, 2001 would be 57 percent. See also the section New share issue prepares Observer for further expansion.
Accounting Principles
The company applies the recommendations of the Swedish Financial Accounting Standards Council and the Annual Accounts Act. The year-end report has been prepared in compliance with recommendation RR 20 of the Swedish Financial Accounting Standards Council's on Interim Financial Reporting.
Dividend
The Board of Directors recommends that the Annual General Meeting approve a dividend of SEK 0.45 (0.45) per share.
Acquisitions/Divestments
In November, Observer acquired Bacon's Information, a U.S. leader in Media Intelligence and Communication Tools. Bacon's has around 400 employees and a turnover of SEK 390 million during the period October 2000 - September 2001. The company is consolidated as of December 1.
In August, Observer acquired two of Canada's leading companies in media and market monitoring. The acquisitions were Observer's first in North America. The Canadian operations are consolidated as of September 1 and are now merged within one company under the Bowdens name.
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 is consolidated as of March 31.
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 and is consolidated as of March.
In May, Observer acquired the News Online group, the market leader in Sweden and Norway in Nordic media data. Its information is available online, on CD-ROM and in print. The News Online companies are consolidated in 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 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.
Observer begins 2002 well positioned. Its cost base has been reduced by slightly over SEK 80 million annually, at the same time that its offerings have been expanded to include new services. By broadening operations to North America, Observer is able to create a uniquely attractive offering for multinational clients.
The aim is to return as quickly as possible to an operating margin before goodwill amortization and items affecting comparability of 22 percent.
New share issue prepares Observer for further expansion In 2001, Observer acquired six companies with a combined turnover of more than SEK 600 million. Its strong financial position allowed the group to finance all these acquisitions with existing funds and increased borrowing. This financial strength, in the opinion of the Board of Directors, significantly improved Observer's opportunities to successfully implement the acquisitions.
Due to this expansion and increased borrowing, Observer is now limited in its ability to take on further acquisitions, however. To better prepare the group financially for its continued expansion, the Board of Directors plans to recommend a new share issue with preferential rights for current shareholders. The new issue is expected to provide the company with proceeds of approximately SEK 400 million.
Further Consolidation of the Market
Despite considerable consolidation in recent years, the market for Observer's services is still fragmented, with many small, local firms. Moreover, a number of markets remain relatively untapped, with low growth, a limited range of value-added services and a large number of companies that monitor markets on their own.
Although Observer will focus in the immediate future on the integration of the companies it has already acquired, it will also continue to monitor opportunities for new acquisitions. The fragmented market and attractive conditions for acquisitions are expected to create such opportunities. In addition to complementary acquisitions in existing markets, Observer has future plans to establish a presence in other key European markets, such as Italy, France and Spain. Expansion opportunities in Eastern Europe are also considered attractive. Asia is another untapped market that offers great potential in the long term.
In Observer's opinion, the increase in shareholders' equity, along with a lower indebtedness, with better prepare the group financially for a continued expansion through acquisitions.
Size is competitive advantage Observer is active in an industry distinguished by high entry barriers and clear economies of scale, which should give the group, as market leader, a significant competitive advantage.
To a growing extent, clients are demanding value-added services. Developing new services, often with an increasingly advanced technological content, is costly and requires special competence, however. Large companies such as Observer can utilize economies of scale to spread investments in new technology and new services across several markets and a larger client base. Unlike local companies, Observer has an established international presence, major financial resources and a wide network of contacts in the market.
In addition to offering improved opportunities to share experience and services between markets, Observer's global presence puts it in an advantageous position with respect to the world's largest multinational companies. These clients are often in need of fully integrated services between local markets - an area that is currently undeveloped. Observer is well positioned and has developed and introduced new services at both an international and local level for this client category.
Preliminary timetable The Board of Directors of Observer plans to make a decision on the new rights issue, assuming it receives the approval of the Annual General Meeting, around March 1, 2002 and at that time call an Extraordinary General Meeting. The Extraordinary General Meeting is expected to be held on March 18, 2002. The record day for participation in the rights issue is expected to be around March 26, 2002.
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 U.S., 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 U.S., the UK, Sweden, Canada, Finland, Denmark, Germany and Norway.
Financial report schedule 2002:
May 2 Interim report January-March + Annual General Meeting August 15 Interim report January-June October 29 Interim report January-September
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) on February 19. To participate, please phone: +44 (0) 20 8781 0596 Use code: Observer
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The following files are available for download:
www.waymaker.net/bitonline/2002/02/19/20020219BIT00210/bit0002.doc The full year-end report www.waymaker.net/bitonline/2002/02/19/20020219BIT00210/bit0002.pdf The full year-end report