Emap easy prey for takeover as radio and magazine profits fall

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The Independent Online

Emap warned yesterday that advertising revenues in its radio and consumer magazine businesses had plunged further, leaving the media group vulnerable to a takeover bid.

Putting out the company's second profits alert in a year, its chief executive Tom Moloney admitted that Emap faced "structural" difficulties in its glossy magazines and radio businesses. The third leg of the group, business-to-business publications, continues to prosper.

Emap also announced a cost-cutting programme that aims to save £20m a year by 2008/09. The restructuring will cost £30m, and the company has earmarked a further £10m for investment.

For the current financial year ending in March, Emap said that results would come in at the bottom end of City expectations. However, for 2007/08, profits will be well down - analysts cut their profit predictions for that year by some £25m to around £170m. Mr Moloney said: "The market had factored in a recovery next year, but we're not seeing any sign of that. The forecasts were too frothy."

For the current year, the problem is the radio business, which includes the Magic and Kiss brands. For most of last year, radio revenues had been down around 4 per cent, but December 2006 and January 2007 had seen that deficit balloon to 10 per cent.

Mr Moloney said: "Advertising is going online. There is a legend that young people no longer listen to the radio. That they're only listening to iPods and MySpace. That's not true, but these things are driven by sentiment."

In the consumer magazine business, which includes men's mag FHM, car title Max Power and the women's weekly Closer, monthly publications are struggling to compete for advertising with weeklies and the internet. Mr Moloney made it clear that titles that were not profitable would be axed. The company has already closed a number of magazines, including Smash Hits and Sneak (both aimed at the teenage market) and FHM in the US. It has sold Period Living and the music title Mixmag.

Analysts pointed out that, so far, Emap's investment in digital media had been relatively modest. That might mean that any cost savings would have to be reinvested.

The company's shares closed down 4 per cent to 774p. The de-rating that Emap shares have suffered over the last year means that the company is seen as prey for private equity. Analysts said that the three parts of the group provided an easy break-up strategy for any buyer, while the company has a low pension fund deficit and its well-performing business-to-business arm would soon make up half of the company's profits.

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