Interim Report January - June 2002

8/15/2002 8:47 AM EST

Observer AB (publ)
Interim report January - June 2002

Operating profit before goodwill amortization rose by 52 percent
compared with the corresponding period a year earlier. Strong cash flow
and the successful rights issue in April improve Observer's acquisition
capacity.

· The group's operating revenue rose to SEK 874.5 million
(631.3), an increase of 39 percent. Organic growth in local currency was
-2 percent (11).

· Operating profit before goodwill amortization and items
affecting comparability rose to SEK 164.1 million (108.3). For
comparable units, profit rose by 5 percent. The operating margin
improved to 18.8 percent (17.2). The seasonal variation has increased
significantly since the acquisition of Bacon's of the U.S. In the second
quarter, the operating margin was 15.8 percent, against 15.3 percent in
the corresponding period a year earlier.

· Profit per share after tax and full dilution, excluding
goodwill amortization and items affecting comparability, amounted to SEK
1.46 (1.21).

· A strongly positive cash flow from operating activities of SEK
106.6 million (2.3), the SEK 400 million rights issue in April and a USD
175 million revolving credit facility have given Observer a strong
financial position and increased its acquisition capacity.

· The integration of Bacon's is progressing well. Efforts are
under way to coordinate client offerings in the U.S. and Canada as well
as introduce Observer's entire range of services in North America.
·
Comment by Observer CEO Robert Lundberg
"Our focus on operating margin will continue until we see clear
indications of an economic improvement. Sales and profit are normally
considerably stronger in the first and fourth quarters, as previously
noted. A strong cash flow and the successful rights issue in April have
prepared us well for further international expansion."


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
The weak economy has 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.

A broad range of services, an international presence and the opportunity
to take advantage of economies of scale remain decisive factors for
maintaining a strong market position and good profit. The market for
analytical services remains good.

Communication Tools
Growth in Communication Tools' services is also being affected adversely
by the weak economy, which has slowed IR and PR activity.

As a result of lower 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 new clients has been lower, however.

With the acquisition of Bacon's of the U.S. in late 2001, Observer's
operations in the Select (database) area have increased, which has also
meant a greater seasonal variation in the Group's revenue. Normally,
Select sales in the U.S. are concentrated in the first and fourth
quarters.

Revenue
Operating revenue amounted to SEK 874.5 million (631.3), an increase of
39 percent. Of this total, Media Intelligence accounted for SEK 662.7
million (500.4) and Communication Tools for SEK 222.8 million (137.6).
For the period, organic growth in local currency was -2 percent. Organic
growth in the Nordic countries was -6 percent, while the rest of Europe
as a whole reached 2 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 (4).

Profit
The group's operating profit before goodwill amortization and items
affecting comparability amounted to SEK 164.1 million (108.3). Operating
profit was charged during the period with SEK 6.9 million for
integration costs in the U.S. The operating margin rose to 18.8 percent
(17.2). The Media Intelligence division reached an operating margin of
17.9 percent (15.6) and Communication Tools 28.7 percent (27.8).

As a result of the cost cuts, the Nordic operations are maintaining good
operating margins despite negative growth and the operating margin in
the rest of Europe improved compared to the corresponding period of the
previous year.

Net financial income and expenses amounted to SEK -35.9 million (-11.9),
which includes a net interest expense of SEK -42.0 million, exchange
rate effects of SEK 6.7 million and other items of SEK -0.6 million.
During the summer, Observer's holding in Jupiter Media Metrix was
divested with no effect on profit.

Profit after tax for the period amounted to SEK 18.8 million (22.1).
Profit per share after tax and full dilution, excluding goodwill
amortization and items affecting comparability, amounted to SEK 1.46
(1.21). The lower tax charge during the second quarter is due to the
U.S. acquisition, which will also reduce taxes in the future.

North America
Bacon's of the U.S., which was consolidated as of December 2001, has
developed according to plan. The company is active in both Media
Intelligence and Communication Tools and has a leading market position
in the U.S.

The Canadian companies acquired in the autumn of 2001 have been merged.
Operations are now concentrated in one company and are developing
according to plan. Efforts to coordinate offerings in the U.S. and
Canada and introduce Observer's entire range of services in North
America 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. No provisions were made 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 considerable goodwill. The total
goodwill item on the balance sheet amounts to SEK 2,666.0 million. Since
December 31, 2001 goodwill has decreased by SEK 385.2 million, of which
SEK 305.1 million consists of exchange rate effects.

Shareholders' equity amounted to SEK 1,929.5 million (1,645.1) at the
end of the period, or SEK 28.62 per share (29.64). The debt/equity ratio
was 49 percent (20), an improvement of 45 percentage points since the
beginning of the year. In June, the company's long-term financing was
strengthened through a USD 175 million revolving credit facility. The
financing has a final maturity of five years and further strengthens the
financial base for a continued expansion.

Rights 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. Following the rights issue,
the conversion of convertible debenture loans and the exercise of
warrants, the number of shares amounted to 67,427,998 as of June 30.

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 through acquisitions 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 at the end 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, August 15, 2002

Robert Lundberg
President and CEO

Observer AB
Observer's operations are divided into two divisions. The Media
Intelligence division, which is active in Business and Communication
Intelligence, offers media and 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,
Germany and Norway.

Observer AB is quoted on the Attract 40 section of Stockholmsbörsen's O-
list and has approximately 28,000 shareholders.



Financial report schedule 2002:
October 29 Interim report January-September 2002

For further information, please contact:

Per Blixt, Senior VP Corporate Communications/Investor Relations,
telephone: +46 70 549 28 08,
e- mail:  

Jan-Erik Jansson, Senior VP and Chief M&A Officer,
telephone: +46 8 507 410 14
or +46 70 511 91 53,
e- mail:  

Robert Lundberg, Chief Executive Officer,
telephone: +46 8 507 410 10,
e- mail:  

Anders Lundmark, Chief Financial Officer,
telephone: +46 8 507 417 23 or
+46 70 333 29 77,
e- mail:  

[REMOVED GRAPHICS]
Further comments on the interim report will be provided at a telephone
conference with Observers AB's management at 3:30 p.m. (CET) on August
15. To participate, please phone +44 (0) 20 8781 0562 Use code: Observer