Ailing radio giant gambles on turnaround plan for Capital

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The Independent Online

GCap Media, the country's biggest commercial radio group, yesterday unveiled dismal financial results, slashed its dividend and unveiled a risky plan to turn around its flagship Capital FM station by halving the number of advertising slots.

That saw the shares plunge 17 per cent to 282p, the steepest fall by any constituent of the FTSE 250 index. The group - formed in April by the merger of Capital Radio and GWR - notched up pre-tax profits of £12.4m in the six months to the end of September, down from £17.3m last time.

Revenues dwindled by 11 per cent to £111.6m as the market for radio advertising remained arid and difficult to forecast.

Ralph Bernard, GCap's chief executive, said: "These results are extremely disappointing and I believe in no way represent the full potential of the portfolio of assets owned by the group. We are taking firm management action to improve them."

He said he had expected the thumping meted out to GCap shares and insisted that it did not represent a thumbs-down for his aggressive recovery plan from big shareholders.

"We have not had any shareholder reaction," Mr Bernard said. "Our institutional shareholders are a pretty stable bunch and will not be bounced into any reaction."

GCap's bold strategy to revive the wilting fortunes of its flagship Capital 95.8FM station will see it re-launched in January with 50 per cent fewer adverts aired - and never more than two in a row.

Prices will be held steady at first, and the move is slated to trim revenue by a £7m a year.

But it is hoped that fewer ads, more news and features programmes, and different music will claw back listeners who have defected to BBC radio and rival Heart FM, owned by Chrysalis and now the most popular station in London.

Bigger audience figures would allow GCap to charge advertisers more for these fewer slots at some point in the future.

GCap, which also owns Classic FM and Xfm, has seen its 95.8FM station lose half its market share in London over the past four years. GCap has conducted an extensive survey of listeners to find out what they want.

A radical overhaul of the rest of the group will include a sale of nine regional analogue radio stations, which will be confirmed by the end of this financial year. Others will be rebranded.

Proceeds will be returned to shareholders, who saw their dividend almost halved to 3.1p from 6p. A total payment of 18.5p a share is promised for this year and next - the same as last time as proceeds from the sale of non-core stations will be returned to shareholders.

Mr Bernard dismissed speculation that a pack of predators, including private equity firm CVC Partners and a consortium headed by former Emap radio boss Tim Schoonmaker, are circling GCap.

"Do I look bothered?" he said. "The speculation I read is just that: speculation. It's having zero effect. We have not had any approach."

He is far more concerned by proposals for expanding digital radio, and is threatening to mount a high court challenge should media regulator Ofcom release broadcasting spectrum for up to 20 new digital stations.

GCap has invested heavily, as the majority shareholder, in Digital One, which is at present the owner of the only national digital radio licences outside the BBC. Mr Bernard said GWR was awarded those licences seven years ago on the understanding that no more would be handed out to commercial rivals. "There is a moral and legal right to an expectation of exclusivity," he said.

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