1 January – December 2006 Observer AB. 2 Highlights January - December 2006 Revenue up 8 % and EBIT* up 16 % Strong growth in integrated services driven.
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1
January – December 2006
Observer AB
2
Highlights January - December 2006
Revenue up 8 % and EBIT* up 16 %
Strong growth in integrated services driven by evaluation services
Growth in international client segment
Restructurings in the Nordic & Baltic region proceed according to plan
Further restructurings in the UK initiated
Positive development in the US, Canada, Germany and Portugal
A company for mediating digital information established in January
* Excluding write-down goodwill and restructuring expenses
January - December
3
Market
Expected global market growth: 5-7%
Generally good market conditions
New media and channels create opportunities for service development
– Crises management through blog monitoring
– New channels, primarily within broadcast monitoring
Growing importance of reputation and brands drive demand
Rising demand for integrated services with value-added analyzed information
Growing demand within international client segment
Copy right issues change market prerequisites
Tough competition in all service areas
Consolidation will continue and increase, mainly driven by technological shift (digitalization), internationalization of industry and lack of critical mass amongst regional competitors.
January - December
4
January – December 2006
Amounts in SEK million January – December
Revenue 1 915 (1 776)
Organic growth 4 % (2)
EBIT - 612 (175)
EBIT excl. write-down goodwill and restructuring expenses 204 (175)
Operating margin excl. write-down goodwill and restructuring expenses 11 % (10)
Operating cash flow 178 (163)
January - December
5
October – December 2006
Amounts in SEK million October - December
Revenue 487 (489)
Organic growth 4 % (2)
EBIT - 281 (44)
EBIT excl. write-down goodwill and restructuring expenses 32 (44)
Operating margin excl. write-down goodwill and restructuring expenses 7 % (9)
Operating cash flow 22 (73)
January - December
• Nonrecurring expenses of SEK 21 million in the UK during Q4
• Restructuring expenses of SEK 23 million during Q4
• Weak development in Anglo Europe
6
Organic Growth & Operating Margin* (rolling 12 months)
-2%
0%
2%
4%
6%
8%
2004 Q
3
2004 Q
4
2005 Q
1
2005 Q
2
2005 Q
3
2005 Q
4
2006 Q
1
2006 Q
2
2006 Q
3
2006 Q
4
Gro
wth
5%
7%
9%
11%
13%
15%
Marg
in
Organic growth Operating margin
* Excluding write-down goodwill and restructuring expenses
January - December
7
Operating Cash Flow and EBIT * (rolling 12 months)
0
50
100
150
200
250
2004 Q
3
2004 Q
4
2005 Q
1
2005 Q
2
2005 Q
3
2005 Q
4
2006 Q
1
2006 Q
2
2006 Q
3
2006 Q
4
OC
F
0
50
100
150
200
250
EB
IT
Operating Cash Flow EBIT *
* EBIT before write down of goodwill and restructuring costs Amounts in SEK million
January - December
8
Balance Sheet December 31, 2006
Working capital: -81 Equity / Assets ratio: 45 % Debt / Equity ratio: 61 % Net debt: 764
Financial liabilities 904
Operating liabilities 454
Equity 1 249
Financial Assets, 140
Current receivables, 373
Other fixed assets, 274
Goodwill 1 922
Amounts in SEK million
January - September
9
The Regions
North America Improved earnings Organic growth amounted to 7 % (Q4: 7 %) Healthy demand for integrated services Strong market for broadcast monitoring
Nordic & Baltic Improved but still weak earnings Digitalization will reduce costs Organic growth amounted to 5 % (Q4: 6 %) Strong double digit growth in evaluation services Positive development in the international client segment
Rest of Europe Lower earnings Organic growth amounted to -1 % (Q4: -2 %) Positive development in Germany and Portugal Weak development in UK and Ireland
January - December
10
Changes and development
Revised strategy and new financial targets
Digitalization of client offering and production processes
Strategic approach through establishment of new company
Strategic repositioning for increased efficiency and profitability:
Uniform profile and service offering
Common solutions and tools for the European market
International client offering and processes Strategic sourcing
Expansion in geographic markets with high shareholder ROI
Restructuring - estimated savings: SEK 130 + 70 million, costs: SEK 120 + 50 million
January - December
11
Savings measures 2006
Reduction of the Head Office organization
A common functional Nordic organization implemented
– New Regional Director appointed February 8 2007
Centralization of Nordic digital production
One of two production sites in Norway shut down
The Estonian operations sold; operations in Latvia discontinued
– Operations in the Baltic countries concentrated in Lithuania.
New management in the UK
Irish operations shut down
One of three production sites in the UK shut down
January - December
12
Further savings measures
Estimated savings: SEK 70 million; costs: SEK 50 million
Coordination of business processes
Changeover to a digital client offering based on a digital production process
Uniform profile and offering in Europe
The previous and current action programs are expected to lead to yearly savings of SEK 200 million
with a full effect by 2009. Restructuring expenses are expected to total SEK 170 million. The impact
on earnings based on the 2006 expense level and exchange rates is estimated as follows:
Estimates of aggregate effects are preliminary and could be affected by outside circumstances, which could result in eventual changes in the time schedule.
January - December
Mkr 2006 2007 2008 2009
Savings impact 10 75 165 200
Restructuring expenses 57 63 50 –
13
Observer today
Strengths
Global market leader
Unparalleled offering – breadth and depth
Large client base
Prime position in North America – the leading media market in the world
Strong cash flow
Opportunities
Strong growth in international client segment
Strong position within our client segment
Effects from initiated cost reduction program
Increased synergies within and between regions
Expansions to new markets
Observer is well positioned to capitalize on a growing market.
January - December
14
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