Operating expenses
In the quarter, total operating expenses amounted to €172 million, an increase of 28% or €38 million compared to the fourth quarter of last year (Q4 2009: €134 million). The increase in operating expenses was mainly the result of higher marketing and R&D expenses. Sequentially operating expenses increased by €49 million (Q3 2010: €123 million) mainly because of higher marketing expenditure. Operating expenses as a percentage of revenue for the quarter increased to 33% (Q4 2009: 25%) and were stable compared to the previous quarter (Q3 2010: 33%).
R&D expenses for the quarter were €44 million, an increase of €7.7 million compared to the previous quarter (Q3 2010: €36 million) and an increase of €7.6 million or 21% compared to the same quarter last year (Q4 2009: €37 million).
Amortisation of technology and databases for the quarter was €23 million (Q3 2010: €18 million, Q4 2009: €18 million). The increase is the result of a one-off accelerated amortisation of tools and databases which are no longer in use.
Marketing expenses for the quarter amounted to €48 million, a sequential increase of 180% and a year on year increase of 86% (Q3 2010: €17 million; Q4 2009: €26 million). This sequential increase results from the seasonal pattern of our business with higher marketing spend in the fourth quarter in our Consumer Business Unit. In 2010 we significantly increased fourth quarter expenditure compared to the previous year. Total marketing expenses represented 9.4% of total revenue, an increase of 4.8 percentage points sequentially and 4.5 percentage point increase year on year (Q3 2010: 4.6%; Q4 2009: 4.9%).
Selling, general and administrative (SG&A) expenses for the quarter amounted to €54 million, representing a sequential increase of 15% compared to the previous quarter and a year on year increase of 4% (Q3 2010: €47 million; Q4 2009: €52 million). The sequential increase is explained by a one-off gain in the previous quarter. SG&A expenses represented 10% of current quarter group revenue, compared to 12% in the previous quarter and 10% in the same quarter last year.
The operating result for the quarter was €65 million, a sequential increase of €9.8 million or 18% (Q3 2010: €55 million) and a year on year decrease of 42% (Q4 2009: €111 million) mainly because of the higher operating costs. As the percentage of revenue, the operating profit was 13%, a decrease of 8 percentage points compared with the same quarter last year (Q4 2009: 21%) and down by 2 percentage points sequentially (Q3 2010: 15%).
Financial results
In the quarter we paid €6.1 million in interest on our €683 million term loan and €174 million revolving credit facility. The amortisation of the transaction costs related to the term loan and revolving credit facility amounted to €1.8 million. In the quarter we repaid €85 million of term debt. The total interest expense for the fourth quarter amounted to €8.1 million (Q4 2009: €11 million, Q3 2010: €10 million).
Due to the 2% appreciation of the US dollar against the Euro in the past quarter we realised a gain of approximately €5 million in financial income and expenses.
Tax
The income tax charge was €10.3 million in the fourth quarter (Q4 2009: €21.9 million). The effective tax rate in the fourth quarter was 16.5% (Q3 2010: 22.4%; Q4 2009: 23.2%). The low tax rate in the quarter was influenced by the one-off impact of a transfer of a content database from the US to the Netherlands.
Debt financing
As at 31 December 2010, the carrying value of borrowings amounted to €588 million (Q3 2010: €673 million; Q4 2009: €790 million). The reduction compared to the third quarter is the result of the repayment of €85 million at the end of the fourth quarter plus the amortised transaction costs which are added back to the borrowings over the lifetime of the borrowings. Excluding transaction costs, which are netted against the borrowings, our outstanding borrowings at the end of the quarter amounted to €598 million (Q3 2010: €683 million).
Net debt as at 31 December 2010 decreased to €294 million from €416 million at the end of the previous quarter and €442 million at the end of the prior year. Net debt is the sum of the borrowings (€598 million), less cash and cash equivalents at the end of the period (€306 million) plus our financial lease commitments (€1.2 million). The net debt to EBITDA ratio at year end was 0.98 times (YE 2009 1.31 times).
Balance sheet
As at 31 December 2010, accounts receivable plus other receivables had
increased by €65 million to €348 million compared to the previous
quarter (Q3 2010: €283 million; Q4 2009: €320 million). The inventory
level was €94 million, an increase of €14 million or 18% in comparison
to the previous quarter and an increase of €27 million or 41% compared
to the same quarter last year (Q3 2010: €80 million; Q4 2009: €67
million). Cash and cash equivalents at the end of the quarter were €306
million.
